Because the cost of capital is used to evaluate future investment proposals,it is important to flotation costs because such costs would be incurred if a firm were to raise new capital to fund proposed projects.

Question

Quizplus · Accepted Answer

Flotation costs refer to the expenses incurred by a firm when it raises new capital, such as fees paid to investment banks, underwriters, and other professionals. These costs reduce the net amount of funds that are raised and increase the cost of capital. Thus, it is important to consider flotation costs when evaluating investment proposals because they impact the cash inflows and outflows associated with the project and affect the overall profitability of the investment.

Because the Cost of Capital Is Used to Evaluate Future