Higher the Firm's Flotation Cost for New Common Equity, the More

question 38

True/False

higher the firm's flotation cost for new common equity, the more likely the firm is to use preferred stock, which has no flotation cost, and retained earnings, whose cost is the average return on the assets that are acquired.

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Definitions:

Collateral

The property that is subject to a secured interest.

Collateral

An asset or property that a borrower offers to a lender as security for a loan, which can be seized if the loan is not repaid.

Secured Party

An entity or individual that holds an interest in a debtor's property as security for a debt or obligation, ensuring priority claim over the property if the debt is not repaid.

Proceeds

The money or benefits received from a transaction, especially after the sale of assets or completion of a financial operation.