Floatation costs

What’s the preferred treatment? a) Treat it as initial cash outflow (i.e. deduct it as from the NPV) b) Treat it as part of the cost of capital. Also guys have you guys figured out how to determine the breakeven point of the WACC?

a for sure. What do you mean by Breakeven? Are you asking something related to IRR?

B, figuring it out with the initial cash outflows distorts the returns too much. Adjust based on% of equity.

Pepp, i havent seen breakeven point of wacc before just break point which is: Amount that cost of capital changes(eg. debt, CE)/weight in WACC

I believe they have recently changed the method used in regards to flotation costs. Since it is a one time cost there is no reason to include it in your cost of capital that will affect future cashflows in the discounting process. Therefore, treat is as part of an initial cash outflow

Thanks for this question, I didn’t read it well enough earlier.