According to the traditional pecking order view, a company normally prefers which sequence when raising finance?
Correct answer: A. Retained earnings, debt, new shares
- A. Retained earnings, debt, new shares
- B. Debt, new shares, retained earnings
- C. New shares, debt, retained earnings
- D. Preference shares, retained earnings, debt
Explanation
The pecking order theory states that firms generally prefer internally generated funds first, followed by debt, and issue new equity as a last resort. Information asymmetry and issue costs help explain this preference.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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