The Jamestown Co. has a capital structure which is based on 40 % debt, 15 % preferred stock, and 45 % common stock. The flotation costs are 8 % for common stock, 9 % for preferred stock, and 4 % for debt. What is the weighted average flotation cost?

Question

Quizplus · Accepted Answer

The weighted average flotation cost is calculated by multiplying the proportion of each type of capital by its respective flotation cost and then summing these products. For Jamestown Co., this calculation is as follows: (0.40 * 4%) + (0.15 * 9%) + (0.45 * 8%) = 1.6% + 1.35% + 3.6% = 6.55%.