Two considerations that cause a corporation's cost of capital to be different than its investors' required returns are

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Corporate taxes and flotation costs can cause a corporation's cost of capital to be higher than its investors' required returns. Corporate taxes reduce the amount of earnings that can be distributed to investors as dividends, which increases the cost of equity. Flotation costs, such as underwriting fees and expenses associated with issuing securities, also increase the cost of capital for the corporation but do not affect the investors' required returns.

Two Considerations That Cause a Corporation's Cost of Capital to Be