For small issues of common stock, the costs of flotation amount to about 15 % of the

Question:

"For small issues of common stock, the costs of flotation amount to about 15 % of the proceeds. This means that the opportunity cost of external equity capital is about 15 percentage points higher than that of retained earnings." Does this make sense?

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...

Fantastic news! We've Found the answer you've been seeking!