Flotation costs reduce the cost of borrowing funds for the firms.

Question

Quizplus · Accepted Answer

Flotation costs refer to the expenses incurred by a firm in issuing new securities, such as underwriting fees, legal fees, and registration fees. These costs are not directly related to the cost of borrowing funds, but rather to the cost of raising capital through the issuance of securities. Therefore, flotation costs typically increase the cost of capital for a firm, rather than reducing it.

Flotation Costs Reduce the Cost of Borrowing Funds for the Firms