What are flotation costs and why must they be included in the initial cost of a...

What are flotation costs and why must they be included in the initial cost of a project? Explain in detail.

Expert Solution

Flotation cost are the cost which are incurred by company when they are issuing the new stock and incurring various kinds of expenditures so these are associated with the the cost that the company which will be issuing new stock will be experiencing and they are one time expenditure that should be adjusted out of the future cash flows in order to not overstate the cost of capital forever.

so it can be said that flotation costs should be included in the initial cost of project because it will help in proper adjustment of the cost of equity because flotation cost are just one time cost and they should not be always incurring and they should be adjusted appropriately because the cost of capital would be appropriate in nature after proper adjustment and It should not be assumed that these cost are going to Incurr always as they are one time payment in nature so they should be adjusted out of future cash flows in order to not overstate the cost of capital

jeff jeffy answered 2 years ago

What are flotation costs and why they must be included in the initial cost of a...

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What are flotation costs and why must they be included in the initial cost of a...

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