The fact that flotation costs can be significant is an argument for:
A) issuing larger regular dividends than the industry norm.
B) maintaining a constant dividend policy even if the firm frequently has to issue new shares.
C) periodic extra dividend payments.
D) maintaining a constant dividend policy even when profits decline significantly.
E) maintaining a low dividend policy and rarely issuing extra dividends.

Question

Quizplus · Accepted Answer

Flotation costs are the costs incurred by a company when it issues new securities, such as equity or debt. These costs can be significant, and they reduce the funds available to the company for investment. As a result, maintaining a low dividend policy and rarely issuing extra dividends is the best choice in order to conserve funds and mitigate the impact of flotation costs on the company's cash flow. This allows the company to invest in growth opportunities and maintain its financial flexibility.

The Fact That Flotation Costs Can Be Significant Is an Argument