Under the pecking order theory, debt is the cheapest source of funds due to the interest tax shield.

Question

Quizplus · Accepted Answer

The pecking order theory suggests that companies prioritize their sources of financing based on the principle of least effort or resistance, preferring internal financing first, then debt, and issuing equity as a last resort. It does not specifically state that debt is the cheapest source of funds.

Under the Pecking Order Theory, Debt Is the Cheapest Source