MANAGEMENT

Detailed explanation-1: -What Is a Flotation Cost? Flotation costs are incurred by a publicly-traded company when it issues new securities and incurs expenses, such as underwriting fees, legal fees, and registration fees. Companies must consider the impact these fees will have on how much capital they can raise from a new issue.

Detailed explanation-2: -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.

Detailed explanation-3: -Flotation costs are not usually incorporated in the estimated cost of capital for debt and preferred stock issues.

Detailed explanation-4: -The ideal approach to record flotation costs is to deduct the cost from the cash flows used to calculate the net present value. This cost is a cash outlay since the organization never received the amount.