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The pecking order theory posits that equity financing is the least preferred financing choice because: a. Cost of equity is higher than the cost of
The pecking order theory posits that equity financing is the least preferred financing choice because:
a. Cost of equity is higher than the cost of debt.
b. Equity financing is costly.
c. Equity financing is associated with dilution of ownership.
d. Due to asymmetric information, when managers issue new equity, investors believe that managers think that the firm is overvalued and managers are taking advantage of this over-valuation. As a result, investors will place a lower value to the new equity issuance.
e. None of the above
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