BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
Cost of raising Funds
|
|
Fixed Cost
|
|
|
Fluctuating cost
|
|
|
Floatation Cost
|
|
|
Variable cost
|
Explanation:
Detailed explanation-1: -The difference between the cost of new equity and the cost of existing equity is the flotation cost, which is (20.7-20.0%) = 0.7%. In other words, the flotation costs increased the cost of the new equity issuance by 0.7%.
Detailed explanation-2: -The average flotation cost ranges from 2% to 8%, which may vary depending on the security issued. It will decrease the amount the organization aims to raise by issuing new securities in the market.
Detailed explanation-3: -The preferred method for including flotation costs in the analysis is as an initial cash flow in valuation analysis. C. Whenever debt and preferred stock are raised, flotation costs are usually incorporated in the estimated cost of capital.
There is 1 question to complete.