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Hello Sir,
Can you plz explain the following lines
Business will try to match the investment opportunities with internal finance provided this does not mean excessive change in dividend payout ratio
If its not possible to match the investment opportunity with internal finance , the surplus funds will be invested.I don’t know where you found this, but the last sentence does not make any sense.
Pecking order theory states that firms will use internal finance before looking to raise external finance.
its in the bpp rev kit q54 FAQ
now i am pasting the ordings from the answerConsequences of pecking order theory
Businesses will try to match investment opportunities with internal finance provided this does not mean
excessive changes in dividend payout ratios. If it is not possible to match investment opportunities with
internal finance, surplus internal funds will be invested;
if there is a deficiency of internal funds, external finance will be issued in the pecking order, starting with straight debt.
i was ok with POT ….The first and last sentences are fine, but the middle sentence is rubbish! (If there are not enough investment opportunities, there how can they invest surplus internal funds? 🙂 )
If there are no investment opportunities, then surplus funds will either be paid out in the form of a higher dividend, or kept until investment opportunities arise in the future.
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