[Verse 1] When a company needs to raise some cash They issue bonds or equity fast But there's a hidden cost they pay For bringing new securities to play Investment bankers take their fee Underwriting's not for free These flotation costs add up today Making capital more expensive in every way [Chorus] Float it up, costs go high F-L-O-A-T makes the price fly Adjust the rate, don't forget New issue costs affect your net Float it up, costs go high Raise that hurdle in the sky When you calculate today Factor flotation costs into the fray [Verse 2] Say your cost of equity's ten percent But new shares cost five percent to present You can't just use that ten today Adjust it up the proper way Divide your cost by one minus the fee Ten divided by point nine five you'll see That gives you ten point five three True cost with flotation reality [Chorus] Float it up, costs go high F-L-O-A-T makes the price fly Adjust the rate, don't forget New issue costs affect your net Float it up, costs go high Raise that hurdle in the sky When you calculate today Factor flotation costs into the fray [Bridge] Legal fees and printing costs Registration, nothing's lost Underwriter spreads so wide All these costs you can't hide WACC gets adjusted too When flotation affects you Every source of capital Gets flotation costs in all [Verse 3] Debt and equity both have their price Flotation makes you pay it twice First the rate the market demands Then the costs to get it in your hands For project evaluation time Don't let flotation costs decline Your NPV analysis flow Adjust those rates so you will know [Chorus] Float it up, costs go high F-L-O-A-T makes the price fly Adjust the rate, don't forget New issue costs affect your net Float it up, costs go high Raise that hurdle in the sky When you calculate today Factor flotation costs into the fray [Outro] Remember when you're raising funds Flotation costs for everyone Adjust your calculations right Keep flotation in your sight
← Marginal Cost of Capital | What Are Dividends and Why Do Companies Pay Them? →