Not-for-profit firms have fund capital in place of equity capital.Since fund capital does not have to provide a return to stockholders, the appropriate cost of fund capital in a cost of capital estimate is zero.

Question

Quizplus · Accepted Answer

While not-for-profit firms may not have equity capital, they still have to generate funds to support their operations and mission. Therefore, they have a cost of capital, which may come from sources such as donations or grants, and this cost should be considered in a cost of capital estimate.

Not-For-Profit Firms Have Fund Capital in Place of Equity Capital