Firm commitment flotation costs are typically lower than those of best efforts.

Question

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This is because in a firm commitment, the underwriter has a guarantee to sell a certain number of shares, whereas in a best efforts offering, the underwriter only agrees to use their best efforts to sell as many shares as possible. As a result, the underwriter may require higher compensation in a best efforts offering to compensate for the additional risk involved.

Firm Commitment Flotation Costs Are Typically Lower Than Those of Best