CNE Financial Sustainability & Diversification 3

Question 1

A nonprofit is considering launching a fee-for-service consulting division. Which primary concern should leadership evaluate first?

Accepted Answer

Whether the activity is related to the exempt purpose or may generate UBIT

Answer

Before launching earned income activities, nonprofits must determine if the revenue is related to their exempt purpose or subject to Unrelated Business Income Tax (UBIT).

Question 2

What distinguishes an 'endowment draw' policy from an operating budget line item?

Accepted Answer

Endowment draw policies govern what percentage of investment assets may be spent annually

Answer

An endowment draw (or spending) policy sets the annual percentage of the endowment's market value that may be withdrawn to support operations or programs.

Question 3

A nonprofit receives a $500,000 bequest with instructions that only the investment income may be spent. This is classified as:

Accepted Answer

Permanently restricted net assets (endowment)

Answer

A bequest requiring that only income—not principal—be spent creates a permanent endowment, classified under permanently restricted net assets (or net assets with donor restrictions in ASC 958 terminology).

Question 4

Which approach to fundraising diversification involves cultivating mid-level donors ($1,000–$10,000) as a pipeline between small donors and major gift prospects?

Accepted Answer

Mid-level donor program

Answer

A mid-level donor program specifically focuses on donors at the $1,000–$10,000 range, bridging the gap between annual fund donors and major gift prospects.

Question 5

A nonprofit with $2M in annual expenses has $150,000 in unrestricted cash. How many days of cash on hand does it hold (assuming 365 days)?

Accepted Answer

Approximately 27 days

Answer

$150,000 ÷ ($2,000,000 ÷ 365) = $150,000 ÷ $5,479 ≈ 27 days of cash on hand.

(CNE) Certified Nonprofit Executive Practice Test

(CNE) Certified Nonprofit Executive Practice Test

CNE Financial Sustainability & Diversification 3