A Firm Is Considering Expanding Its Operations

A firm is considering expanding its operations. The expansion is in the same risk class as existing operations and requires issuance of debt or equity or both. Since flotation costs will be involved, _______________.

A) The WACC should be adjusted upward to reflect the flotation costs.
B) The firm should determine the highest level of flotation costs under the different financing scenarios and incorporate this into the borrowing costs.
C) The firm should increase the amount of funds needed by an amount equal to the estimated weighted average flotation costs.
D) The WACC should be adjusted downward.
E) The firm should decrease the amount of the future cash flows to reflect the level of flotation costs that will be incurred.