Because donors and patients do not expect a return on their

Because donors and patients do not expect a return on their investment in a not-for-profit hospital, the most appropriate cost of equity capital in a not-for-profit hospital is zero.

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. That is the not for profit companies cannot issue new shares to raise equity.

Because donors and patients do not expect a return on their investment in a not-for-profit hospital, the most appropriate cost of equity capital in a not-for-profit hospital is zero.

Statment Is true.