Flotation costs are
A) insignificant and can be assumed away.
B) the difference between the bid-ask spread on the sale of the security.
C) commissions to the underwriting firm that floats the issue.
D) None of these choices are correct.

Question

Quizplus · Accepted Answer

Flotation costs refer to the expenses incurred by a company in issuing new securities, including fees and commissions paid to underwriters, legal fees, registration fees, and other costs associated with the process. These are not insignificant and do not relate to the bid-ask spread, which pertains to the difference in selling and buying prices in the market.

Flotation Costs Are