The cost in the process of raising funds through equity is known as __________.
This questions was previously asked in
CUET BUSINESS STUDIES Previous Year Paper (2022)
Financial risk
Incorrect Answer Cost of debt
Incorrect AnswerFloatation cost
Correct AnswerCost of capital
Incorrect AnswerExplanation:
Explanation:
The cost incurred by a company while raising funds through the issue of shares (equity) is known as Floatation Cost.
It includes various expenses such as:
- Brokerage
- Commission
- Underwriting fees
- Legal fees
- Advertising charges
- Printing of prospectus
Why Other Options Are Incorrect:
| Option |
Explanation |
| A: Financial risk |
Financial risk refers to the risk of not being able to meet fixed financial obligations, not the cost of raising funds. |
| B: Cost of debt |
Cost of debt is the interest paid on borrowed funds (loans or debentures), not equity. |
| D: Cost of capital |
Cost of capital is the overall cost of financing a business including both debt and equity, but floatation cost is a more specific term for the expense of raising funds through equity. |
Conclusion:
Floatation cost directly refers to the expenses associated with raising equity capital through shares or debentures.
? Correct Answer: C: Floatation cost
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By: AARTI