2) What is “equity financing” in the not-for-profit sector? Name a specific type

Question

2) What is “equity financing” in the not-for-profit sector? Name a specific type of solicitation for contributions.

3) How do investors make money on an organization’s stock? Give an example.

6) Assume that a for-profit company has $8 million of long-term debt with an interest rate of 6%. It has $3 million of preferred stock with a required dividend rate of 8%. And it has $4 million of common stock that is estimated to have a cost of capital of 10%. What is its weighted average cost of capital?

7) Assume that a not-for-profit company has $10 million of long-term tax-exempt debt with an interest rate of 4.5%. The organization has $7 million of unrestricted net assets, with an estimated cost of capital of 6%, and $4 million of restricted net assets (in an endowment) with an estimated 7% return on assets (cost of capital). What is its weighted average cost of capital?

Explanation / Answer

2) Investor owned businesses have two sources of equity financing i.e retained earnings and new stock sales. not for profit businesses can and do retain earnings, but they donot have access to the equity markes that is they cannot sell common stock to raise capital.

Not for profit firms can, howewer, raise equity capital through government grants and charitable contributions.

3) when you're raising money for your startup, it helps to understand how the investors you're pitching will make money for themselves. The formula for paying investors is often not as simple as taking their return on investment and allocating it equally among the key players. you can spend a lot of time explaining your business to an associate who wants to learn about your market and appear knowledgable to the firms partnership.

For example, they may have earned the trust of the partners or spent many years understanding the motivation of each decision maker.

6) WACC = (( 3 / (3+8) * 0.08) + ( 8 / (3+8) * 0.06))

= 0.022 + 0.044

= 0.066 or 6.6%

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