Which of the following is the correct order in which corporations generally raise funds to enhance the wealth of stockholders and to send positive signals to the market?
A) retained earnings, equity, debt
B) retained earnings, debt, equity
C) debt, retained earnings, equity
D) equity, retained earnings, debt

Question

Quizplus · Accepted Answer

Retained earnings are the profits that a company keeps for itself instead of distributing them as dividends to shareholders. Using retained earnings to finance growth projects can send a positive signal to the market that the company is financially healthy and expects continued growth. Debt financing comes second because it is a cheaper source of funding than equity, and issuing debt securities can also signal that the company is confident about its future prospects. Equity financing comes last because issuing new shares dilutes the ownership stakes of existing shareholders and can signal that the company is struggling to generate profits internally.

Which of the Following Is the Correct Order in Which