Business Finance: Business and Marketing

Business Finance: Business and Marketing

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Business Finance: Business and Marketing

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CONTENT:
Business and MarketingNameUniversity Question OneIn the capital markets, floatation costs are common. These are the fees collected by underwriters and financial intermediaries in exchange for their services with the stock buyers (Gitman & Zutter, 2007). These financial intermediaries work in different financial markets such as stock markets, mortgages markets, and insurance markets. The jobs of financial intermediaries in the different financial markets differ but all charge floatation costs. In the stock markets, intermediaries charge fees for the distribution of financial instruments. In the mortgage markets, intermediaries charge processing fees for the loans. In the case of insurance, intermediaries charge fees for the identification and calculation of financial loss. All these are floatation costs associated with transactions in capital markets.Floatation costs have the effect of increasing the costs of capital. When a firm raises capital, one of the factors considered by the management is the cost of capital. Since issuance of different financial securities is associated with different floatation costs, cost of capital varies with different forms of capital. In financial structuring of a firm, cost of capital is one of the most importa...
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