Flotation costs are the costs incurred by a company to raise new capital, such as investment banking fees and underwriting fees. These costs increase the initial investment in a project and reduce the amount of funds available for investment. Therefore, option C is the correct answer.

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Flotation Costs

Question 137

Multiple Choice

Flotation costs

A) have no effect on the project's NPV.
B) increase the firm's cost of capital,but only for the life of the project.
C) increase the initial investment in a project.
D) permanently increase the firm's cost of capital.

Correct Answer: