When Calculating the Flotation Cost of a Project, You Should

question 333

Multiple Choice

When calculating the flotation cost of a project, you should use:

• A) The current pre-tax debt to equity weights.
• B) The weights based on the actual intended sources of capital for the project.
• C) The target capital structure %ages.
• D) The weighted average of the market values of the current capital structure.
• E) The weighted average of the book values of the current capital structure.

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Definitions:

Bad Debt Expense

An expense recorded to account for receivables that are expected not to be collected.

Accounts Receivable

Money owed to a business by its clients or customers for goods or services that have been delivered or used but not yet paid for.

Net Sales

The total revenue a company generates from sales after subtracting returns, allowances, and discounts.

Increase in Accounts Receivable

A situation where the amount of money owed by customers to a company grows due to sales on credit outpacing payments received.