All else the same, an investor is likely to prefer a firm with a high dividend payout if flotation costs are significant.

Question

Quizplus · Accepted Answer

Flotation costs reduce the net proceeds from issuing new securities, making existing securities more attractive. However, a high dividend payout does not directly mitigate the impact of flotation costs on new securities. Investors might prefer firms that reinvest earnings (lower dividend payout) to grow, especially if flotation costs are significant, as this can lead to higher future returns without the immediate need for external financing.

All Else the Same, an Investor Is Likely to Prefer