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 answers is correct.

Question

Quizplus · Accepted Answer

Flotation costs refer to the fees and expenses incurred by a company to issue new securities, such as underwriting fees, legal fees, and other expenses.  The most common form of flotation costs is the commission paid to the underwriting firm that floats the issue. While flotation costs can vary, they are typically not insignificant and should be accounted for in financial analysis. Therefore, choice C is the correct answer. Choice A is incorrect because flotation costs are an important consideration for any new securities issue. Choice B is incorrect because bid-ask spread is not related to flotation costs. Choice D is incorrect because one of the answers is correct.

Flotation Costs Are