When a Firm Has Flotation Costs Equal to 6

question 10

Multiple Choice

When a firm has flotation costs equal to 6 % of the funding need, it should:

• A) Increase the weighted average cost of capital (WACC) to offset these expenses by multiplying the WACC by 1.06.
• B) Increase the weighted average cost of capital (WACC) to offset these expenses by dividing the WACC by (1 -.06).
• C) Add 6 % to the weighted average cost of capital to get the discount rate for the project.
• D) Increase the initial project cost by multiplying that cost by 1.06.
• E) Increase the initial project cost by dividing that cost by (1 -.06).

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Definitions:

Anatomical Direction

Terms used to describe the locations and orientations of structures within the body relative to other structures or locations, such as anterior, posterior, superior, and inferior.

Inferior

Anatomical term meaning below or closer to the feet; also called caudal.

Chemical Reactions

Processes that involve the rearrangement of molecular or ionic structure of substances, resulting in the formation of one or more new products.

Matter

Anything that occupies space and has mass, composed of atoms and molecules and existing in solid, liquid, gas, or plasma states.