What is the main purpose of flotation costs adjustment?

Flotation costs refer to the expenses incurred by a company when it issues new securities, including costs related to underwriting, legal fees, and registration. The main purpose of adjusting for flotation costs is to ensure that the calculation of the cost of new common stock is accurate. This adjustment is crucial because flotation costs reduce the amount of capital a company actually receives from a given amount of stock issuance.

By incorporating flotation costs into the calculation, companies can get a clearer picture of the true cost of raising equity capital. This is essential for making informed decisions about financing and evaluating investment projects. For instance, if a company fails to adjust for these costs, it might underestimate the cost of new equity, leading to potentially flawed financial decision-making.

In contrast, the other options focus on unrelated financial concepts. Assessing overall market conditions pertains more to market analysis rather than specific capital raising, while raising interest rates on loans does not directly relate to flotation costs. Calculating corporate tax obligations is also distinct, as it involves a different aspect of corporate finance that deals with taxation rather than directly costing capital processes.