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

Question

Quizplus · Accepted Answer

The weighted average flotation cost is calculated by multiplying the flotation cost of each component by its respective weight in the capital structure and summing the results: (0.40 * 0.04) + (0.15 * 0.09) + (0.45 * 0.08) = 0.0655 or 6.55 percent.