Which of the Following Statements About a Not-For-Profit Firm's Cost

question 7

Multiple Choice

Which of the following statements about a not-for-profit firm's cost of capital estimate is most correct?

• A) Since a not-for-profit firm has no shareholders, its WACC estimate does not include a cost of equity (fund capital) estimate.
• B) The capital structure weights for a not-for-profit firm are set at 50/50, because such firms can raise $1 of debt financing for each dollar of retained earnings.
• C) The cost of tax-exempt debt issued by not-for-profit firms is increased ("grossed up") by 1 - T in the WACC estimate to reflect the fact that such firms do not pay taxes.
• D) Equity (fund) capital has a cost that is roughly equivalent to the cost of retained earnings to similar investor-owned companies.
• E) Not-for-profit firms have a zero cost of capital.

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Definitions:

Positive Reinforcement

Increasing behaviors by presenting positive stimuli, such as food. A positive reinforcer is any stimulus that, when presented after a response, strengthens the response.

Primary Reinforcer

A stimulus that is naturally rewarding or satisfying, such as food, water, or relief from pain.

Garbage

Refuse or waste material discarded by humans, typically consisting of everyday items like food waste, paper, and plastic.

Operant Conditioning

A procedure in teaching whereby the strength of a particular behavior is manipulated via reinforcements or penalties.