If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to sccount for flotation costs. The fint approach is to add the sum of fotation costs for the debt, preferred, and common thock and add them to the initial investment cost, Becinuse the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdile rate for acceptance of the project. The second approach icwilves adjusting the cost of cammon equity as follows: Cost of equity from bew stock =t4=Fy1(1T1D1+g The deference bctween the fotation-adjusted cost of equity and the cost of oquity calculated without the fotation adjugtment regresents the foestien codt adjuatment. to its cost of cetained eerningit oo not round intermediate caiculations. 9lound rour answer to two decmal places. decinkil places