Which one of the following statements is correct if the pecking order theory holds? Firms with the highest debt ratios can be expected to have the lowest profits owing to the lesser availability of internal finance Firms will be keen to undertake equity issues as this signals to investors that managers believe the firm is undervalued Firms will raise funds via equity issues in preference to debt issues Firms will raise funds via external finance in preference to internal finance None of the above

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter1: Introduction And Goals Of The Firm
Section: Chapter Questions
Problem 8E
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Which one of the following statements is correct if the pecking order theory holds?

  1. Firms with the highest debt ratios can be expected to have the lowest profits owing to the lesser availability of internal finance

  2. Firms will be keen to undertake equity issues as this signals to investors that managers believe the firm is undervalued

  3. Firms will raise funds via equity issues in preference to debt issues

  4. Firms will raise funds via external finance in preference to internal finance

  5. None of the above

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