Assume that a not-for-profit company has $20 million of long-term tax-exempt debt with an interest rate of 6.0%. The organization has $3 million of unrestricted net assets, with an estimated cost of capital of 7.5%, and $9 million in an endowment with an estimated 5.0% return on assets (cost of capital). What is its weighted average cost of capital?

Question

Quizplus · Accepted Answer

The Answer is $20 million long-term debt x 6.0% = $1,200,000
$3 million unrestricted NA x 7.5% = $225,000
$9 million restricted NA x 5.0% = $450,000
$32 million total capital Total Cost: $1,875,000
$1,875,000/$32,000,000 x 100% = 5.86% average cost of capital

Assume That a Not-For-Profit Company Has $20 Million of Long-Term