a. $ 35,000 b. $ 57,000 c. $ 89,000 d. $116,000 e. $132,000 a. -0.75% b. -0.15% c. 0% d. 0.15% e. 0.75% a. $2,756 b. $3,642 c. $4,443 d. $4,967 e. $5,491 a. In contrast to corporate bonds, municipal bond issues are not required to be registered with the Securities and Exchange Commission. b. Whereas the vast majority of Treasury and corporate bonds are held by institutions, no municipal bonds are held by individual investors. c. The primary attraction of municipal bonds to individual investors is their high before-tax yields. d. Municipal bonds usually pay higher coupon rates than corporate bonds with similar ratings. e. Municipal bonds are risk-free. a. Not-for-profit firms are governed by a board of trustees whose members are elected by the community at large. b. The residual earnings (profits) of not-for-profit firms can be distributed to the firms top managers. c. Not-for-profit firms are exempt from federal taxes, but they must pay state and local taxes, including property taxes. d. Upon liquidation of a not-for-profit firm, the proceeds from the sale of its assets are distributed, on a pro rata basis, to the firms employees. e. None of the profits are used for private inurement. a. Since a not-for-profit firm has no shareholders, its WACC estimate does not include a cost of equity (fund capital) estimate. b. The capital structure weights for a not-for-profit firm are set at 50/50, because such firms can raise $1 of debt financing for each dollar of retained earnings. c. The cost of tax-exempt debt issued by not-for-profit firms is increased (grossed up) by 1 T in the WACC estimate to reflect the fact that such firms do not pay taxes. d. Equity (fund) capital has a cost that is roughly equivalent to the cost of retained earnings to similar investor-owned companies. e. Not-for-profit firms have a zero cost of capital. a. Fund capital is equivalent to equity capital in investor-owned firms. b. The sole source of fund capital is the excess of revenues over expenses. c. Fund capital has a zero opportunity cost. d. Fund capital can only come from donations. e. Fund capital does not change over time. a. Since not-for-profit firms are tax exempt, there is no tax advantage to debt capital. b. Fund capital is obtained by retaining earningsif all earnings are paid out as dividends, no fund capital is created. c. Preferred stock is never used by not-for-profit firms. d. Not-for-profit firms are not allowed to raise capital by borrowing. e. Not-for-profit firms usually have high dividend payouts.
