What are two alternative ways by which flotation costs can be included in the analysis?
This analysis, floatation costs can be calculated by two alternative ways, as debt and equity. FLoation cost would reduce total of company’s income from sold of stocks. This cost consist of: cost of stock printing, commission for underwriter, public offering,etc.
Floation cost can be stated by one of two ways, in amount of dollar (per share) or as percentage from market price ( price that investor paid). In this case stated tha floation cost for equity by $ 0-50 million = 10 % selling price. it means that bank investment would sell of new common stock issue that as price is $ 50 million per share but this floation cost is 10 % ( for 1 dollar is $ 5 millionper share). Then the company would receive net of stock price = $ 45 millions per share. This net price should determining cost of financing for that, preferred stocks, and common stocks ( If flotation cost included)