*This is the price the company pays to obtain and retail finance.
To obtain finance a company will pay implicit costs which are commonly known as floatation costs. These include: Underwriting commission, Brokerage costs, cost of printing a prospectus, Commission costs, legal fees, audit costs, cost of printing share certificates, advertising costs etc. For debt there are legal fees, valuation costs (i.e. security, audit fees, Bankers commission etc.) such costs are knocked off from:
i) The market value of shares if these have only been sold at a price above par value.
ii) For debt finance – from the par value of debt.
I.e. if flotation costs are given per share then this will be knocked off or deducted from the market price per share. If they are given for the total finance paid they are deducted from the total amount paid.
Wilfykil answered the question on August 5, 2019 at 05:27