When a firm has flotation costs equal to 6.8 percent of the funding need, project analysts should:?

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Business

Enrique Bean

10 April, 18:45

When a firm has flotation costs equal to 6.8 percent of the funding need, project analysts should:?

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Isiah Wilcox · Answer 1

When a firm has flotation costs equal to 6.8 percent of the funding need, project analysts should increase the initial project cost by dividing that cost by (1-0.068). The flotation cost is the cost which emerge when a corporation gather its fund by issuing new securities. Underwriting fees, legal fees, registration fees are the common fees that will increase corporate's expense when they issue securities. Therefore, we can consider those fees as a flotation cost.