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.

How flotation costs affect cost of capital?

Flotation costs are the costs that are incurred by a company when issuing new securities. ... Essentially, the incorporation of the costs reduces the final price of the issued securities and subsequently lowers the amount of capital that a company can raise.

Will an increase in flotation costs increase or decrease the initial cash flow for a project?

According to this viewpoint, in monetary terms, flotation costs can be specified as an amount per share or as a percentage of the share price. ... This negatively impacts the value of the project by reducing its initial cash flow.