Based on historical experience, which of the following best describes the "pecking order" of long-term financing strategy in Canada?
A) Long-term debt first, new common equity, internal financing last.
B) Long-term debt first, internal financing, new common equity last.
C) Internal financing first, new common equity, long-term borrowing last.
D) Internal financing first, long-term borrowing, new common equity last.

Question

Quizplus · Accepted Answer

The "pecking order" theory suggests that companies prefer to finance new projects using internal funds first (retained earnings), then by issuing debt, and finally, as a last resort, by issuing new equity. This is because internal financing is generally the least expensive and least risky form of financing, followed by debt, with new equity being the most expensive and risky due to the dilution of existing ownership and the costs associated with issuing new shares.

Based on Historical Experience, Which of the Following Best Describes