Flotation costs of issuing new securities
A) decrease the cost of capital
B) encourage the retention of earnings
C) encourage external financing
D) do not affect the cost of capital

Question

Flotation costs of issuing new securities​
A) ​decrease the cost of capital
B) encourage the retention of earnings​
C) encourage external financing​
D) do not affect the cost of capital​

Quizplus · Accepted Answer

Flotation costs are the costs incurred by a company when it issues new securities. These costs can make external financing more expensive, thereby encouraging companies to retain earnings (use internally generated funds) instead of issuing new securities to raise capital.

Flotation Costs of Issuing New Securities​

Flotation Costs of Issuing New Securities