All of the following statements are correct except:
A) The pecking order hypothesis is a theory that states managers prefer to use new debt to finance the firm, then retained earnings, and (as a final resort) new equity.
B) The market timing hypothesis states that firms try to time the equity market by issuing stock when their stock prices are high and repurchasing shares when stock values are low.
C) The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs).
D) Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero.

Question

Quizplus · Accepted Answer

The pecking order hypothesis actually suggests that firms prefer to finance new investments first with retained earnings, then with debt, and as a last resort, with new equity.

All of the Following Statements Are Correct Except