In 2007, the present value of a company increased from 10 Billion dollar to 15 Billion...

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In 2007, the present value of a company increased from 10 Billion dollar to 15 Billion dollar. The company debt was 4Billion dollar in 2006 and increased to 6 Billion in 2007. In 2008 the company Debt increased to 8Billion while the firm value increased to 20 Billion. The majority of the investors are supporting the usage of pecking order theory in determining the firm capital structure. When CEO has been asked about the capital structure, he mentioned that he is exactly applying the pecking order theory of capital structure to maximize the firm value. Therefore he believes he will maximize the value this way and want every shareholder to feel better about the company. I am a shareholder of this company. Should I believe in the CEO? In 2007, the present value of a company increased from 10 Billion dollar to 15 Billion dollar. The company debt was 4Billion dollar in 2006 and increased to 6 Billion in 2007. In 2008 the company Debt increased to 8Billion while the firm value increased to 20 Billion. The majority of the investors are supporting the usage of pecking order theory in determining the firm capital structure. When CEO has been asked about the capital structure, he mentioned that he is exactly applying the pecking order theory of capital structure to maximize the firm value. Therefore he believes he will maximize the value this way and want every shareholder to feel better about the company. I am a shareholder of this company. Should I believe in the CEO?

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The Pecking Order Theory of capital structure suggests that firms prefer internal financing retained earnings over external financing and when externa... View the full answer