Which of the following statements about the cost of equity t

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

Solution

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.