Alternatives for Handling Losses in Cooperatives
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Cooperatives can handle a loss in several ways. This paper evaluates two primary alternatives: retain in the cooperative or allocate to patrons. The cooperative’s and patrons’ preferences are based on choosing either a tax reduction or redemption reduction. Present value of cash flow is used as the criterion for evaluating choices. The cooperative’s and patrons’ preferences may be in harmony or conflict depending on the marginal income tax rates and pattern of equity redemption. A simple procedure is presented to determine a cooperative or patron preference.