What Value Should You Assign as the Flotation Cost of Internally

question 41

Multiple Choice

What value should you assign as the flotation cost of internally generated equity financing?

• A)A cost that yields the company's required rate of return on the funds utilized
• B)Fifty percent of the external flotation cost of equity
• C)A cost of zero
• D)The same cost as that of the external equity financing
• E)The same cost as that of the debt financing

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Definitions:

Cash Flow

The entire valuation of money transfers that flow into and exit a venture, significantly influencing its liquidity.

New Equity Sales

The process of offering new shares of stock to the public or existing shareholders to raise capital.

Dividends Paid

The total amount of money distributed by a company to its shareholders out of its profits or reserves, usually on a regular basis.

CCA Rate

The annual depreciation rate used for tax purposes to write off the cost of capital assets over time in Canada.