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Flotation costs of issuing new securities

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Reference no: EM133123016

1. Briefly explain how an increase in the amount of debt that a firm has outstanding may actually decrease the agency costs caused by the conflict betweenshareholders and management.

2. The pecking order theory of capital structure suggests that managers will choose to use retained earnings before issuing additional debt when financing new projects.

In your opinion, does that infer anything about the flotation costs of issuing new securities? Why?

Reference no: EM133123016

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