Flotation costs cause a corporation's cost of capital to be lower than its investors' required returns.

Name: Flotation costs cause a corporation's cost of capital to be lower than its investors' required returns.
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Question

Quizplus · Accepted Answer

Flotation costs, such as underwriting fees and legal expenses, increase the cost of issuing new securities and therefore increase a corporation's cost of capital. This means the corporation's cost of capital is higher than its investors' required returns, not lower.

Flotation Costs Cause a Corporation's Cost of Capital to Be