FM8e- ch27 - 27 - 1 CHAPTER 27 Financial Management in...

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27 - 1 For-profit (investor-owned) vs. not-for-profit businesses Goals of the firm CHAPTER 27 Financial Management in Not-for-Profit Businesses
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27 - 2 Owners (shareholders) are well defined, and they exercise control by voting for the firm’s board of directors. Firm’s residual earnings belong to the owners, so management is responsible to the owners for the firm’s profitability. Firm is subject to taxation at the federal, state, and local levels. What are the key features of investor-owned firms?
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27 - 3 One that is organized and operated solely for religious, charitable, scientific, public safety, literary, or educational purposes. Generally, qualify for tax-exempt status. What is a not-for-profit corporation?
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27 - 4 Not-for-profit corporations have no shareholders, so all residual earnings are retained within the firm. Control of not-for-profit firms rests with a board of trustees composed mainly of community leaders who have no economic interests in the firm. What are the major control differences between investor-owned and not-for-profit businesses?
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27 - 5 Because not-for-profit firms have no shareholders, they are not concerned with the goal of maximizing shareholder wealth. Goals of not-for-profit firms are outlined in the firm’s mission statement. They generally relate to providing some socially valuable service in a financially sound manner. How do goals differ between investor- owned and not-for-profit businesses?
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27 - 6 Yes. The WACC estimation for not-for-profit firms parallels that for investor-owned firms. Is the WACC relevant to not-for-profit businesses?
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Because not-for-profit firms pay no taxes, there are no tax effects associated with debt financing. A not-for-profit firm’s cost of equity, or cost of fund capital, is much more controversial than for an investor- owned firm. Is there any difference between the
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This note was uploaded on 08/29/2009 for the course FM Finance taught by Professor Unknown during the Spring '09 term at DeVry Addison.

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FM8e- ch27 - 27 - 1 CHAPTER 27 Financial Management in...

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