Question
In: Finance
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.
Solutions
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 agoRelated Solutions
What are flotation costs and why they must be included in the initial cost of a...
What are flotation costs and why they must be included in the
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What are flotation costs and why they must be included in the initial cost of a...
What are flotation costs and why they must be included in the
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measurement of risk in the capital market.
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What costs are included in the initial cost of property, plant,
and equipment when they are purchased? What is the rationale for
including costs in addition to the purchase price of the asset?
please answer in your own words, do not use the outside
resources
In at least 200 words, what are flotation Costs. how and why are they used, and...
In at least 200 words, what are flotation Costs. how
and why are they used, and why are they important?
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What costs are included in determining the total cost of an
asset?
Why would a company include more than just the purchase price of
an asset?
Some argue that companies depreciate assets because they lose
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or why not?
What costs are included in determining the total cost of an asset? Why would a company...
What costs are included in determining the total cost of an
asset? Why would a company include more than just the purchase
price of an asset? Some argue that companies depreciate assets
because they lose value. From a financial accounting perspective,
is this true? Why or why not?
how do issue/flotation costs affect the cost of capital?
how
do issue/flotation costs affect the cost of capital?
1. what cost are included in the cost of the plant asset? 2. what costs are...
1.
what cost are included in the cost of the plant asset?
2. what costs are included in the cost of land?
3. what is a building and what costs are included in the cost
of the building?
4. what is equipment and what costs are included in the cost
of equipment?
5. what type of cost are immediately recorded as an
expense?
Define the term: Flotation Costs. Should we expect the flotation costs for debt to be significantly...
Define the term: Flotation Costs. Should we expect the flotation
costs for debt to be significantly lower than those for equity? Why
or why not? Please support your answer using supporting information
from the chapters in this unit and the course. Do you agree with
the positions taken by your classmates? Can you provide
counterpoints or insight as to why they may want to reconsider
their view of expected flotation costs?
Thinking about the definition of the term "flotation costs," should we expect the flotation costs for...
Thinking about the definition of the term "flotation costs,"
should we expect the flotation costs for debt to be significantly
lower than those for equity? Why or why not? Please support your
answer using supporting information
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