Pecking Order Financing Choices of XYZ Corporation

Very Hard Capital Structure Decisions Pecking Order Theory

XYZ Corporation is a mid-sized manufacturing company experiencing steady growth in revenue and earnings. The company is considering a new capital project that requires an investment of $5 million. The CFO is evaluating financing options and is keen to adhere to the principles of Pecking Order Theory. Given XYZ Corporation's historical issuance patterns and the current market conditions, which financing option is most aligned with the Pecking Order Theory?

Issuing new equity, despite the high cost of capital.

Utilizing retained earnings, as they are the least expensive financing option.

Taking on new debt, as the company already has substantial equity.

Hint

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