Capital Planning & Investment Analysis Flashcards
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Read the first 7 Capital Planning & Investment Analysis flashcards as text
A healthcare CFO is comparing leasing versus purchasing diagnostic equipment. Which factor most favors leasing over purchasing?
Answer: Rapid technological obsolescence of the equipment
When equipment becomes outdated quickly, leasing allows upgrades at lease end without being burdened by obsolete owned assets.
The terminal value (salvage value) in a capital budgeting analysis represents:
Answer: The estimated proceeds from disposing of the asset at the end of its useful life
Terminal (salvage) value is the estimated net cash inflow from selling or disposing of the asset after the analysis period ends.
When evaluating capital projects using NPV, an increase in the discount rate will:
Answer: Decrease NPV, making long-payback projects less attractive
Higher discount rates reduce the present value of future cash flows more aggressively, particularly hurting projects with cash flows far in the future.
A rural critical access hospital applies for a USDA Community Facilities loan to fund a building expansion. This type of financing is an example of:
Answer: Government-backed debt financing with favorable terms for rural healthcare
USDA Community Facilities loans provide government-backed, low-interest debt financing specifically for rural healthcare infrastructure.
In capital investment analysis, 'real options' analysis differs from standard DCF by:
Answer: Assigning value to management's flexibility to expand, delay, or abandon a project
Real options analysis values managerial flexibility—such as the option to expand if demand grows or abandon if conditions worsen—which standard DCF ignores.
A healthcare organization is preparing a 10-year capital plan. Which factor is LEAST relevant when prioritizing projects on the plan?
Answer: Historical cost of previously completed capital projects
Historical costs of completed projects are sunk costs irrelevant to future capital allocation decisions.
Which method of financing a major hospital expansion preserves the most flexibility on the organization's balance sheet by keeping debt off the books?
Answer: Operating lease for building space
Under ASC 842, qualifying operating leases still keep more obligations off-balance-sheet compared to owned assets financed with debt.
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