1. Assume a project has the following expected cash flows:

YearExpectedNet Cash Flow0($400,000)1100,0002150,0003200,0004250,000

What is the projects payback(payback period)?

a. 2.00 years

b. 2.25 years

c. 2.50 years

d. 2.75 years

e. 3.15 years Answer:

2. Mercy Hospital is considering a project that is expected to reduce the hospitals annual operating costsby $250,000 per year beginning in Year 1. In addition, the project is expected to generate $400,000 in revenue per year beginning in Year 1. All else held constant, what is the projects expected net cash flow in Year 1?

a.$150,000b.$250,000c.$400,000d.$650,000e.-$250,000

Answer:

3. A skilled nursing facility chain is considering building a new facility on a piece of property that it currently owns. The property was purchased five years ago for $250,000 and could be sold now at a current market value of $100,000. When estimating the cash flows for the new facility, what amount should be included to recognize the opportunity cost of usingthe land for the proposed project?

a.$0 (the landis a sunk cost)b.-$150,000c.$250,000d.$100,000e.-$100,000

Answer:

4. Chronic Pain Clinic is considering a capital investment project that is expected to generate $150,000per year in cash revenues and $78,000 per year in cash operating costs. Additionally, $10,000 of existing overhead costs will be allocated to the project each year. What is the projects expected net cash flow in Year 1?

a.$72,000b.$62,000c.$150,000d.-$78,000e.-$88,000

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5. A project is estimated to have an NPV equal to $85,000. The risk-adjusted opportunity cost of capitalis 15 percent. Which of the following statements is most correct?

a. The projects IRR is less than 15 percent.

b. The projects IRR is zero.

c. The projects IRR is greaterthan 15 percent.

d. The projects IRR is equal to 15 percent.

e. The projectshould be rejectedbecause its IRR cannot be calculated.

Answer:

6. The primaryadvantages of the MIRR over the IRR include which of the following?

a. The MIRR overcomes problemswith the IRR calculation when a project has nonnormal cash flows.

b. The MIRR assumes reinvestment of the proceeds from capital projects at the project cost of capitalrather than at the internal rate of return.

c. The MIRR accounts for a projects terminal value while the IRR does not.

d. Answers a. and b. are both correct.

e. Answers a., b., and c. are all correct.

Answer:

7. A medical group practice is considering offering a new service with risk that is greaterthan the currentrisk of the business. In evaluating this investment, the decision maker should:

a. Increase the IRR of the projectto reflect the greater risk.

b. Increase the NPV of the projectto reflect the greater risk.

c. Reject the project, becauseits acceptance would increase the risk of the business.

d. Ignore the risk differential if the projectrepresents only a small fraction of the total assets of the firm.

e. Increase the cost of capital appliedto the project to make it greater than the businesss corporate cost of capital.

Answer:

8. Which of the following statements about projectrisk analysis techniques is most correct?

a. Sensitivity analysisconsiders the joint (combined) impact of changes in uncertain input variables on profitability.

b. Scenario analysisconsiders the joint(combined) impact of changes in uncertain input variables on profitability.

c. Scenario analysis, as it is done in practice, usually involves four scenarios.

d. When standarddeviation of NPV is used to measurerisk, the smaller the value, the greater the risk.

e. In a sensitivity analysisgraph, the steeperthe plot lines, the lower the risk.

Answer:

9. WeCare HMO is evaluating a new project.It has a coefficient of variation(CV) of 5, while the HMOs averageproject has a CV of 2 to 3. The businesss corporate cost of capital is 10 percent, and the typical adjustment for project risk is three percentage points. What is the appropriate project cost of capital?

a.7%b.10%c.13%d.16%e.19%

Answer:

10. Which of the followingstatements about capitalrationing is most correct?

a. Capital rationing occurs when a business does not have the capital necessary to fund all acceptable projects.

b. Capital rationing occurs when a business has more capital available than needed to fund all acceptable projects.

c. Under capitalrationing, the typicalapproach is to accept all projects with negative NPVs.

d. Statements a. and b. are both correct.

e. Statements a., b., and c. are all correct.

Answer:

11. Which of the followingstatements concerning Monte Carlo simulation is false?

a. Monte Carlo simulation can be performedon personal computers.

b. Monte Carlosimulation uses continuous distributions to proxy input variable uncertainty.

c. Monte Carlosimulation can producea very large number (tens of thousands or more) of project scenarios.

d. The inputsrequired to performa Monte Carlosimulation are as easy to develop as in a traditional scenario analysis.

e. The outputof a Monte Carlo simulation contains several useful measures such as expected NPV, probability of a positive NPV, and maximum and minimum NPVs.

Answer:

12. Assume a healthcare organization is analyzing a capital investment project with greater risk than that of the organizations average project. Which of the following cost of capital alternatives would be most appropriate foranalyzing the projects net present value?

a. The rate of returnavailable on a standard savings account, because it is known with certainty

b. The corporate cost of capital

c. The rate of return available on a money market fund where the firm invests its short-term cash reserves

d. The rate of return available on alternative investment opportunities of similar risk to the project being considered

e. The expectedrate of inflation

Answer:

13. The type of risk most relevantfor projects beingevaluated by investor-owned businesses is:

a. Stand-alone risk

b. Corporate risk

c. Market risk

d. Answers a. and c. are both correct

e. Answers a., b., and c. are all correct Answer:

14. The natureof a projects component cash flow distributions and their correlation with one another determine a projects:

a. Stand-alone risk

b. Corporate risk

c. Market risk

d. Answers a., b., and c. are all correct

e. None of these answersis correct

Answer:

15. Which of the followingtechniques provides the most information about a projects riskiness?

a. Sensitivity analysis

b. Scenario analysis

c. Monte Carlo simulation

d. Certainty equivalent method

e. Risk-adjusted discountrate method

Answer:

16. The revenue cycle is composed of:

a. Before-service activities

b. At-service activities

c. After-service activities

d. Continuous activities

e.The revenuecycle involves all of these activities

Answer:

17. Which of the following techniques are used to monitora businesss receivables?

a. Average collection period

b. Aging schedule

c. Collections budget

d. Answers a. and b. are both correct

e. Answers a., b., and c. are all correct

Answer:

18. Businesses hold short-term securities for which of the following reasons?

a. As a substitute for cash

b. As a temporary repository for cash being accumulated for a specific purpose

c. As a buffer against bad debt losses

d. Answers a. and b. are both correct

e. Answers a., b., and c. are all correct

Answer:

19. Suppose that a clinic as third-party payer revenues of

$10,000 a day. On average, it takes the clinic 50 days to collect from its payers. What will be the steady state receivables balance?

a.$ 10,000b.$ 50,000c.$250,000d.$500,000e.$750,000

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20. Suppose a hospital writes checks of $100,000 per day and it takes, on average, seven days for those to be received and clear the banking system. Furthermore, the hospital receives $120,000 in checks daily that take four days to be deposited and credited. What is the hospitals float?

a.$100,000b.$120,000c.$220,000d.$240,000e.$440,000

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21. Ocala Clinicsservices result in $5,000 in daily billingsto third-party payers. On average, it takes the clinic 50 days to collect its receivables. If the interest rate on loans needed to finance receivables (cost of carryingreceivables) is 10 percent, what is the clinics dollar annual cost of financing its receivables balance?

a.$25,000b.$20,000c.$15,000d.$10,000e.$ 5,000

Answer: