Page 41 - FINAL CFA SLIDES DECEMBER 2018 DAY 11
P. 41
Session Unit 10:
36. Cost of Capital
LOS 36.l: Explain and demonstrate the correct treatment of flotation costs.. p.54
Flotation costs (often about 2-7% of amount raised) are the fees charged by investment bankers
when a company raises external equity capital.
Incorrect Treatment of Flotation Costs, p.54
If a company has a dividend of $1.50 per share, a current price of $30 per share, and an expected
growth rate of 6%, the cost of equity without flotation costs would be:
tanties
If we incorporate flotation costs of 4.5% directly into the cost of equity computation, the
cost of equity increases:
