One way to account for flotation costs of raising capital is to
A) adjust all the project's cash flows so that each year it will reflect the flotation costs.
B) adjust the project's initial cash flow so that it will reflect the flotation costs.
C) adjust only the project's operating cash flows to account for paying back the shareholders.
D) adjust the project's tax burden to account for the tax implications of raising capital.

Question

Quizplus · Accepted Answer

Adjusting the project's initial cash flow to reflect the flotation costs is a common method to account for these expenses. This approach ensures that the initial investment accurately represents the total outlay required to finance the project, including the costs associated with issuing new securities.

One Way to Account for Flotation Costs of Raising Capital