11.13 Real world approaches

Question 1

What is the “pecking order theory” of preference for financing decision?

Answer 1

A theory that states companies have the following order of preference for financing decisions:
1 retained earnings
2 straight debt
3 convertible debt
4 preference shares
5 equity shares

Question 2

What real world factors might affect capital structures?

Answer 2

• growth
• market conditions
• tax exposure