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

question 9

Multiple Choice

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

• A) 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.
• B) 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.
• C) Equity (fund) capital has a cost that is roughly equivalent to the cost of retained earnings to similar investor-owned companies.
• D) Not-for-profit firms have a zero cost of capital.
• E) Since a not-for-profit firm has no shareholders, its WACC estimate does not include a cost of equity (fund capital) estimate.

Calculate and interpret the finite population correction factor.

Recognize how the level of confidence impacts the width of confidence intervals.

Understand the effect of sample size on the width of confidence intervals.

Know how to reduce the risk that the confidence interval does not contain the population mean.

---

Definitions:

Introvert

A personality type characterized by a preference for solitary activities and environments over social interaction.

Schemas

Cognitive frameworks or structures that help organize and interpret information based on past experiences and knowledge.

Information Gathering

The process of obtaining data, facts, or feedback from various sources to support decision-making, research, or problem-solving.

Self-Fulfilling Prophecy

The phenomenon whereby initially false expectations cause the fulfillment of those expectations.