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Which of the following statements about the cost of equity to not-for-profit businesses is most correct?...

Which of the following statements about the cost of equity to not-for-profit businesses is most correct?

A Because such businesses have no shareholders, the cost of equity is zero.
B The cost of equity is the return available on short-term investments (marketable securities).
C The cost of equity is the greater of the return required to support asset growth or to maintain the desired bond (debt) rating.
D A cost-of-equity estimate is not needed, because not-for-profit businesses are not required to estimate a cost of capital.
E The cost of equity is the same as the cost to similar for-profit businesses plus 3-5 percentage points to account for not-for-profit status.
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Answer #1

There are generally two type of firm, investor owned firm and not for profit firm. The investor owned firms operate to earn profit and maximize the value of firm while not for profit firm operate to help societies for improve the standard. Not for profit business can have one source of equity is retained earnings, but they do not have access to equity market.

Because Not for profit organization businesses have no shareholders, the cost of equity is zero.

Option (A) is correct answer.

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