Flotation costs are incorporated into the APV framework by
A)adding them to the all-equity value of the project.
B)subtracting them from the all-equity value of the project.
C)incorporating them into the WACC.
D)Flotation costs should not be included into APV.

Question

Quizplus · Accepted Answer

Flotation costs are subtracted from the all-equity value of the project in the Adjusted Present Value (APV) framework. This is because these costs represent an initial outlay that reduces the net value of the project to the firm.

Flotation Costs Are Incorporated into the APV Framework by