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

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Business

Giselle Hayes

14 September, 20:01

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

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Alisson Robles · 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.