Question

1. A. From a financial perspective, briefly describe the concept of a business.

B. What is the difference between a business and a pure charity?

2. What are the three legal forms of business organization? What are the advantages and disadvantages of each one?
3. What are the primary differences between investor-owned and not-for-profit corporations?
4. What is the difference between a standard corporation (C-corporation) and a benefit corporation (B-corporation)?
5. A. What is the primary goal of investor-owned corporations

B. What is the primary goal of most not-for-profit healthcare corporations?

C. Are substantial differences found between the financial goals of investor owned and not-for-profit corporations? Explain your answer.

D. What is an agency problem?

6. A. Why are tax lows important to healthcare finance

B. What three major advantages do tax laws give to not-for-profit corporations?

7. Assume that Provident Health System, a for-profit hospital, has $1 million in taxable income for 2019, and its tax rate is 30 percent.
   1. Given this information, what is the firm’s net income? (Net incme is what remains after taxes have been paid.)
   2. Suppose the hospital pays out $300,000 in dividends. A stockholder, Carl Johnson, receives $10,000. If Carl’s tax rate on dividends is 15 percent, what is his after tax dividend?
8. Kim Davis is in the 40 percent personal tax bracket. She is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate.
   1. What is her after-tax yield (interest rate) on the bonds?
   2. Suppose Twin Cities Memorial Hospital has issued tax-exempt bonds that have an interest rate of 6 percent. With all else the same, should Kim buy the HCA or the Twin Cities bonds?
   3. With all else the same, what interest rate on the tax-exempt Twin Cities bonds would make Kim indifferent between these two bonds?
9. George and Margaret Wealthy are in the 48 percent tax bracket, considering both federal and state personal taxes. Norman Briggs, the CEO of Community General Hospital, has been aggressively pursuing the couple to contribute $500,000 to the hospitals soon-to-be built Cancer Care Center. Without the contribution, the Wealthy’s taxable income for 2019 would be $2 million. What impact would the contribution have on the Wealthy’s 2019 tax bill?

Answer 1

A. Business is an activity that involves providing a good and/or service in return for some consideration. It can also be defined as a business that is a commercial activity that involves providing goods and/ or services with a primary motive of earning profits.

B. Business is done for profit motive or something in return but pure charity is not done for something in return but for social well being and help to others.

C. Investor-owned corporations are always profit-centric and the money brought in by the investor is only to get handsome returns. In contrast, Not-for-profit organizations are mainly brought in with the concept of social welfare and to contribute towards society without any profit -motive.

D. C-Corp means corporation in its traditional form or with no variation from the original type of corporation. The primary purpose of a C-Corp is to carry on for it’s shareholders. Whereas benefit corporation (B Corp) provides investors the option to build, and invest in, businesses that operate in a socially and environmentally responsible manner and also earn profit in its addition.