Understanding Flotation Cost

Explain : Flotation Cost

Flotation costs are incurred by a publicly-traded company when it issues new securities and incurs expenses, such as underwriting fees, legal fees, and registration fees. Companies must consider the impact these fees will have on how much capital they can raise from a new issue. Flotation costs, expected return on equity, dividend payments, and the percentage of earnings the business expects to retain are all part of the equation to calculate a company's cost of new equity.