24.According to the pecking order theory of capital structure, why do firms avoi

Question

24.According to the pecking order theory of capital structure, why do firms avoid issuing equity? A. Because fees associated wilth issuing new equity are so high B. Because they want to avoid dilution of earnings per share C. Because they don't want to commit to paying dividends on the new equity D. Because equity issuance signals that managers belleve their stock is overvalued, which causes the price of the stock to fall 25. Under the simplitying assumptions of Modigliani and Miller, an increase in a firm's financial leverage wit: A. increase the variability in eamings per share. B. reduce the operating risk of the firm C. increase the value of the firm. D. decrease the value of the firm Squamish Equipment Selecled financial information Expected net income after tax next year before new financing Sinling-fand payments duc next year on existing debt Interest due next year on existing debe Company tax rate Common slock price, per share Common shares outstanding $40 million $14 million $15 million 36% $20.00 18 million

Explanation / Answer

Ans 24 option D , issuing new equity hints that management thinks their share is overvalued

Ans 25 option A, with rise in financial leverage , variability of earning rises.

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