1a A not-for-profit group practice is evaluating a new clinic proposal having a total cost of $10 million. The entire cost will be financed with a long-term bank loan at 6%. Assuming a tax on business profits of 22%, the after-tax cost of financing to an investor-owned business is 4.68%. The project is average risk and the practices corporate cost of capital based on a target capital structure of 40% debt and 60% equity is 8%. The discount rate that should be used to evaluate the new clinic project in decimal form rounded to the nearest .01 is?

1b Which of the following is a reason why managers of not-for-profit firms do not have the same flexibility as investor-owned firms in making financing decisions?

1. They can't issue common stock.
2. They are not subject to taxation.
3. They can't issue tax-exempt debt.
4. None of these answers is a reason