For a ﬁrm with both debt and equity in its capital structure, the weighted average ﬂotation cost, fA,
will simply be the sum of the percentage ﬂotation cost of debt, fD, and the percentage ﬂotation cost
of equity, fE.

Question

Quizplus · Accepted Answer

The weighted average flotation cost, fA, takes into account the percentage of debt and equity in the capital structure and their respective flotation costs. It is calculated using the formula below:

fA = (D/V) x fD + (E/V) x fE

Where:
D = Total debt
E = Total equity
V = Total value of the firm

Therefore, simply summing up the percentage flotation cost of debt and equity is not accurate for calculating the weighted average flotation cost.

For a ﬁRm with Both Debt and Equity in Its