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Pecking order theory is concerned with the raising of long-term capital (not short-term finance, which is what delaying payments is).
Hello sir. Please can tax benefits be applied to preference shares?
No. Because preference share holders get dividend and dividends are not tax allowable.
Hi John,
In terms of financing working capital , within the pecking order theory where would you place
withholding supplier payments?
Hello sir,
How can there be a cost of debt 10% in the example 1 when there is no debt at all. 0 % share of debt is given in scenario 1 of example 1?
Why not? Maybe you could borrow money from the bank at a cost of 10% – it doesn’t mean you will necessarily be borrowing it 🙂
Anyway, the graph is only of relevance in explaining what happens to the WACC and since they are not borrowing debt at 0% gearing, it is not included in the calculation of the WACC!!
That expalains it.
Thank you 🙂
You are welcome 🙂