Which form of financing do companies prefer to use first according to the pecking-order theory?
A) Regular debt
B) Convertible debt
C) Common stock
D) Preferred stock
E) Internal funds

Question

Quizplus · Accepted Answer

According to the pecking-order theory, companies prefer to use internal funds as their first choice for financing. This is because internal funds do not require the company to incur any debt or dilute ownership, which can be costly or risky. Additionally, using internal funds eliminates the need for external financing, which can be more expensive and difficult to obtain. Therefore, the best choice would be internal funds.

Which Form of Financing Do Companies Prefer to Use First