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Answer: Favor internal financing before considering new equity.
The pecking order theory posits that managers prefer financing methods based on a hierarchy, prioritizing those with the least information asymmetry. Internally generated funds are preferred first, followed by debt, and finally equity. This approach minimizes potential adverse signals to the market. Therefore, managers are most likely to favor internal financing over new equity, making option C the correct answer.
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According to the pecking order theory, company managers are most likely to prioritize which of the following financing methods?
A
Utilize debt financing only as a last resort.
B
Prioritize equity issuance to conserve cash flow.
C
Favor internal financing before considering new equity.
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