All categories

3 years ago

For a levered firm, flotation costs should

Business

1 answer:

KengaRu [80]3 years ago

5 0

Answer:

The answer is option B. For a levered firm, flotation costs should be spread over the life of a project, thereby reducing the cash flows for each year of the project.

Explanation:

When a company’s securities are listed on a public exchange, there is a general saying that securities are floated on the exchange. That is how the name flotation costs came about.

Flotation is actually the costs incurred by a company in issuing its securities to public. it is also called issuance costs.

Examples of Flotation costs include charges paid to the investment bankers, lawyers, accountants, registration fees of the securities regulator and the exchange on which the issue is to be listed.

Flotation cost would vary based on several factors, such as company’s size, issue size, issue type (debt vs equity),

In summary, Flotation costs are the cost a company incurs to issue new stock making new equity cost more than existing ones.

Business analysts argue that flotation costs are a one-time expense that should be adjusted out of future cash flows in order to not overstate the cost of capital forever.

It is based on this premise that i chose option B, which states that flotation costs be spread over the life of a project thereby reducing the cash flows for each year of the project at levered firms.

You might be interested in

The core processes in a value chain must add value for the external customers, while support processes

shusha [124]

Answer:

B. are also part of the value chain

Explanation:

Value chain comprises two activities i.e primary activities and support activities.

The primary activities include those activities which add the value to the customer through inbound logistics, outbound logistics, operations, and marketing sales and services

Whereas the support activities are those activities who support the primary activities. It involves procurement, firm infrastructure, etc

7 0

3 years ago

Your father paid $10,000 (cf at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then

natta225 [31]

From the problem statement it is clear that here we need to find out simple interest rate.
One do not get interest on any investment made at the end of tenure.
Putting this mathematically:
Let amount at the end of 5th year as A
Simple Interest for 5 years, SI = 750 *5
SI = 3750
Hence A = 10000 +3750
A= 13750
Let rate of return = R
Tenure t = 5
But,
A = P(1 + R*t/100)
13750 = 10000( 1+ R*5/100)
13750 = 10000 + 50000R/100
3750 = 500R
R = 3750/500
R = 7.5 %

Hence rate of return is 7.5% per annum (answer)

7 0

3 years ago

Preparing a Schedule of Cash Collections on Accounts Receivable Kailua and Company is a legal services firm. All sales of legal

VMariaS [17]

Answer: $81,060 in August and $80,850 in September

Explanation: Please find attached a table.

August 86,800 17,360 38,500 25,200 81,060

September 91,000 18,200 43,400 19,250 80,850

8 0

3 years ago

290. Many states, in search of industries that are clean, fast-growing, and pay good wages to skilled workers, are trying to att

hammer [34]

Answer: C. clean and fast-growing and that pay

Explanation:

3 0

2 years ago

Judy has realized that she does not like working for others. She wants to open a business i n which she will have maximum contro

qwelly [4]

Answer:

Sole proprietorship

Explanation:

Judy has realized that she does not like working for others . She wants to open a business in which she will have maximum control and the least fro, government regulations . Sole proprietorship is best suited for Judy's needs.

Sole proprietorship is the form of business in which a single person is responsible for all the decisions , that single person have full control over the business .

Sole proprietorship is the form of business which is easy to form with no legal formalities. There is a secrecy in Sole proprietorship . In Sole proprietorship the interference of the government is minimum .Sole proprietorship facilitate quick decision making as he /she does not need to concern with others. In the sole proprietorship , the individual need not share his profit with other person . The overhead cost in Sole proprietorship is less.

In you need not to work under anyone, you just need to open it and run according to you , you have full control over it , as no one can say anything to you .

3 0

3 years ago