The Fact That flOtation Costs Can Be Significant Is Justification

question 30

Multiple Choice

The fact that flotation costs can be significant is justification for:

• A)a firm to issue larger dividends than its closest competitors.
• B)a firm to maintain a constant dividend policy even if it frequently has to issue new shares
• To do so.
• C)maintaining a constant dividend policy even when profits decline significantly.
• D)maintaining a high dividend policy.
• E)maintaining a low dividend policy and rarely issuing extra dividends.

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Definitions:

NPV

Net Present Value; a method used in capital budgeting to analyze the profitability of an investment or project.

CCA Rate

Capital Cost Allowance rate; a method of depreciation used for tax purposes in Canada, allowing a business to deduct the cost of certain assets.

Required Rate of Return

The minimum percentage return an investor expects to achieve by investing in a specific asset or project.

Net Working Capital

The gap between a firm's current assets and its current liabilities, showcasing the business's liquidity and its ability to operate efficiently.