Which of the following statements is correct regarding preferred stock floatation costs and the cost of preferred share equity?

Question

Quizplus · Accepted Answer

The higher the floatation costs, the higher the required rate of return. This is because floatation costs are considered as an additional expense that lowers the overall return for the investor. Thus, to compensate for higher floatation costs, the required rate of return on preferred equity will be higher.

Which of the Following Statements Is Correct Regarding Preferred Stock