Which of the Following Statements Is True of Flotation Costs

question 11

Multiple Choice

Which of the following statements is true of flotation costs?

• A) Flotation costs decrease the cost of preferred stock to the issuing firm.
• B) Flotation costs are added to the issue price of preferred stock to compute the cost of preferred stock.
• C) Floatation costs are added to the cost of debt to compute the weighted average cost of capital of a firm.
• D) Floatation costs result in higher funds available from the issue of preferred stock to the firm.
• E) Floatation costs increase the rate the issuing firm must earn to pay the preferred dividend.

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Definitions:

Insurance Policies

Contracts between an insurer and a policyholder that provide financial protection and compensation for specific losses in return for premiums paid.

Valued Policy

A type of insurance policy where the value of the insured item is agreed upon at the time the policy is issued, and this amount is paid out in the event of a total loss.

Open Policy

An insurance policy that does not name the specific risks covered, but instead provides coverage for all risks, except those explicitly excluded.

Property Insurance

Coverage that provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft.