Overview of Floatation Cost of Capital
Floatation cost of capital
is one of the many capital costs incurred by a particular business entity in its operations. The floatation costs of capital are applicable in case a particular business entity releases some new stocks in the market or even if it takes some debt.
Forms of Floatation Cost of Capital
The present day business entities incur costs of floatation in a variety of forms.
A few of them may be mentioned as below:
Charges of the underwriters
Commission to be paid to brokers
Costs of Administration
Approaches of Floatation Cost of Capital
There are several ways in which floatation cost of capital could be measured. However, the most often used way to calculate the floatation cost of capital is to incorporate it while approximating the cost of capital of a company.
As per many financial analysts the most appropriate way to measure the floatation cost of capital incurred by a particular company is to adopt the cash flows of the particular business project with regard to the floatation cost of capital of a company.
In such calculations the weighed average cost of capital could be used in the form of a rate of discount. However, the weighed average cost of capital has to be unadjusted in the context of the floatation cost of capital.
Description of Floatation Cost of Capital The floatation costs are basically incurred by a business entity when it starts a new business venture and puts money into it. Hence they cannot be described as costs that are incurred on a yearly basis.
Last Updated on : 27th June 2013