what is flotation cost

Flotation cost is the total cost incurred by a company when issuing new securities to the public, such as underwriting fees, legal fees, and registration fees. These costs are expressed as a percentage of the issue price and are incorporated into the final price of the issued securities, which reduces the final price of the issued securities and subsequently lowers the amount of capital that a company can raise. The size of flotation expenses depends on many factors, such as the type of issued securities, their size, and risks associated with the transaction. The flotation costs for the issuance of common shares typically ranges from 2% to 8% . Flotation costs are deducted from the gross receipts total when calculating a company’s capital cost, and they represent a reduction in the funds raised through the issuance of securities.