Suppose your boss comes to you and asks you to re-evaluate a capital budgeting project. The first evaluation was in error, he explains, because it ignored flotation costs. To correct for this, he asks you to evaluate the project using a higher cost of capital which incorporates these costs. Is your boss' approach, correct? Why or why not?

Answer rating: 100% (QA)

Your boss approach is incorrect Incorporating flotation costs by using a higher cost of capital is not the appropriate way to correct the error in the ... View the full answer