Question

QUESTION 20 Flotation costs are expenses associated with the sale of a newly created security.

true

false

Answer 1

The statement is true. Flotation costs are the initial costs like share issue or bond issue costs which company has to pay when it issues new security. These costs could include underwriting fees, legal costs, professional fees paid and similar others incurred when new security are being issued. Flotation costs are generally expressed as percentage of issue price and company receives the net proceeds that is amount after deducting flotation costs from issue of security.