Which of the following would be the result of including flotation costs in the analysis of a project...........

Principles of Accounting & Financial Management Capital Budgeting

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Which of the following would be the result of including flotation costs in the analysis of a project?

It will increase the initial outflow of cash for the project

It will increase the rate of return for the project

It will increase the Net Present Value (NPV) of the project

It will have zero effect on the current value of the project

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Explanation:

Flotation costs are costs a company incurs when it issues new stock. Flotation costs make new equity cost more than existing equity. Analysts argue that flotation costs are a one-time expense that should be adjusted out of future cash flows in order to not overstate the cost of capital forever.