Which of the following statements is true of flotation costs??
A. ?Flotation costs decrease the cost of preferred stock to the issuing firm.
B. ?Flotation costs are added to the issue price of preferred stock to compute the cost of preferred stock.
C. ?Floatation costs are added to the cost of debt to compute the weighted average cost of capital of a firm.
D. ?Floatation costs result in higher funds available from the issue of preferred stock to the firm.
E. ?Floatation costs increase the rate the issuing firm must earn to pay the preferred dividend.
Answer: E
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