The firm cannot costlessly arrange to borrow money, either from a bank or by selling bonds or shares of stock. It costs money to raise money. The costs of issuing securities, flotation costs, include bank application fees; ‘‘points’’ paid on loans; the accounting, legal, and printing costs of offering securities to the public; and any commissions earned by the investment bankers who market the new securities to investors. As a result of these costs, if the firm raises $100 of funds, it actually receives less than $100 to apply to the capital budgeting project. Thus, it must evaluate the cost of financing the project, net of issuing or flotation costs.