1. Assume that Goodhealth Clinic has fixed costs of $1,000,000 and a total cost forecast of $1,500,000 at a volume of 20,000 patient visits. What is the clinic's variable cost rate?
a. $25
b. $20
c. $15
d. $10
e. $ 5
2. Assume that John Richards pays income taxes at a 30 percent rate. He currently owns a not-for-profit (municipal) bond that pays 5 percent interest. What interest rate would have to be set on a for-profit (corporate) bond to produce the same amount of usable (after-tax) income?
a. 5.0%
b. 5.7%
c. 6.6%
d. 7.1%
e. 8.4%
3. Assume the following cost and revenue data for General Hospital: Fixed costs = $15,000,000. Variable cost per inpatient day = $250. What revenue per inpatient day is required to obtain a profit of $1,000,000 at a volume of 25,000 patient days?
a. $890
b. $780
c. $690
d. $580
e. $490
4. 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. Both a. and b. above
e. a., b., and c. above
5. From a provider's perspective, which of the following third-party payment methods has utilization risk?
a. Charge based
b. Capitation
c. Per diem
d. Diagnosis (DRG) based
e. Cost based
6. In the U.S., the highest proportion of healthcare expenditures is for:
a. Prescription drugs
b. Nursing home care
c. Hospital care
d. Dental care
e. Home healthcare
7. Return on investment (ROI) can be measured in either a dollar basis or a rate of return basis. Which of the following statements about ROI is incorrect?
a. Net present value (NPV) is a dollar return measure.
b. IRR is a rate of (percentage) return measure.
c. ROI measures use time value of money concepts.
d. The calculation of IRR requires the project cost of capital (discount rate).
e. The calculation of NPV requires the project cost of capital (discount rate).
8. The following profit information was taken from Eastside Hospital's budget data: Simple budget$1,200,000 Flexible budget$1,000,000 Actual results$ 500,000 What is the simple profit variance? (Hint: An unfavorable variance is identified by a minus sign.)
a. -$200,000
b. -$500,000
c. -$700,000
d. $500,000
e. $700,000
9. The internal rate of return (IRR) of a capital investment
a. Changes when the cost of capital changes.
b. Must exceed the project cost of capital to make the investment financially acceptable.
c. Measures the dollar profitability of a project.
d. Must be less than the project cost of capital to make the investment financially acceptable.
e. Measures the length of time that it takes a business to recover its initial investment in the project.
10. WeCare HMO is evaluating a new project. It has a coefficient of variation (CV) of 5, while the HMO's average project has a CV of 2-3. The business's corporate cost of capital is 10 percent and the typical adjustment for project risk is 3 percentage points. What is the project cost of capital?
a. 7%
b. 10%
c. 13%
d. 16%
e. 19%