As finance manager in public listed firm, discuss three implications of the Pecking- Order Theory in...

As finance manager in public listed firm, discuss three implications of the Pecking- Order Theory in making capital structure decision.

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Capital Structure basically means the combination of debt, Equity & Preference share in different proportion so that cost of capital can be atleast.For the same we use the Pecking Order Theory that is explained in below-----

According to Pecking Order Theory we can say in short that there are mainly three ponits which conclude the theory as how to make capital for the Company -

1. Use internal Financing first - it says firstly we should use internal finance so that there would be atleast cost of capital.

2. Use of Secured Debt, Unsecured Debt, Hybrid Debt Etc- if the company having no internal fiancing then secondaly they should go for debt because debt is known as the cheaper source of Financing due to rate of Interest.

3. Use new Equity as the Last Option- If there is also no sources of debt financing only then the company should go for the Equity as the Last Option because Equity having the atmost cost of Capital.

ekkarill92 answered 2 years ago

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