The cost of newly issued ordinary shares is greater than the current cost ordinary equity because of

Question

Quizplus · Accepted Answer

Flotation costs on newly issued ordinary shares refer to the expenses incurred during the process of issuing and distributing shares such as underwriting fees, legal fees, and registration fees. These costs increase the cost of equity capital and make the newly issued ordinary shares more expensive than the current cost of ordinary equity. Capital gains taxes on retained earnings or newly issued ordinary shares do not directly impact the cost of equity capital.

The Cost of Newly Issued Ordinary Shares Is Greater Than