The percentage of flotation costs associated with a new equity issue is usually quite high for small issues as a consequence of certain fixed costs which must be incurred regardless of the issue size.

Question

Quizplus · Accepted Answer

This statement is true. Flotation costs, which are the costs associated with issuing new securities, consist of both fixed and variable costs. Fixed costs, such as legal and underwriting fees, must be incurred regardless of the size of the issue, which can lead to a higher percentage of flotation costs for small issues.

The Percentage of Flotation Costs Associated with a New Equity