Open AccessValuing Investment Decisions: Flotation Costs And Capital Budgeting
Author(s) -
Neeraj J. Gupta,
Wonhi J. Synn
Publication year - 2010
Publication title -
journal of business and economics research
Language(s) - English
Resource type - Journals
eISSN - 2157-8893
pISSN - 1542-4448
DOI - 10.19030/jber.v8i2.674
Subject(s) - span (engineering) , investment (military) , capital (architecture) , economics , style (visual arts) , capital investment , cash flow , finance , engineering , political science , art , politics , law , civil engineering , literature , visual arts
We highlight a measurement problem inherent in the prevalent approach to factoring flotation costs in capital budgeting decision-making. This arises because the traditional method calculates a higher cost of capital, while keeping the initial cash-flow unchanged. We demonstrate an alternate approach that corrects for this problem by assigning a higher initial investment due to flotation costs, while keeping the cost of capital unchanged.