Arrange the following in the correct pecking order, from highest to lowest: I. Short-term debt
II. New equity financing
III. Long-term debt
IV. Retained earnings
A)I, III, IV, II
B)IV, III, I, II
C)II, IV, III, I
D)IV, I, III, II

Question

Quizplus · Accepted Answer

The correct pecking order, from highest to lowest priority in financing preferences, is: Retained earnings (IV), short-term debt (I), long-term debt (III), and new equity financing (II). This reflects the pecking order theory, which suggests companies prefer to finance first with internal funds (retained earnings), then with debt, and finally with issuing new equity, due to the costs and implications associated with each financing option.

Arrange the Following in the Correct Pecking Order, from Highest