HAC Capital Planning & Investment Analysis 2

Question 1

A hospital is evaluating two capital projects with the same initial cost. Project A has an IRR of 14% and Project B has an IRR of 11%. The organization's hurdle rate is 12%. Which conclusion is correct?

Accepted Answer

Only Project A should be accepted

Answer

Only Project A exceeds the 12% hurdle rate; Project B's IRR of 11% falls below it and would destroy value.

Question 2

Which capital budgeting method is most appropriate when a healthcare organization faces severe capital rationing and must rank mutually exclusive projects?

Accepted Answer

Profitability Index (PI)

Answer

The Profitability Index ranks projects by value created per dollar invested, making it ideal under capital constraints.

Question 3

A clinic's capital investment generates after-tax cash flows of $80,000 annually for 6 years. The initial outlay is $300,000. What is the approximate payback period?

Accepted Answer

3.75 years

Answer

$300,000 ÷ $80,000 per year = 3.75 years payback period.

Question 4

In healthcare capital planning, 'strategic alignment' refers to:

Accepted Answer

Ensuring capital projects support the organization's mission and long-term goals

Answer

Strategic alignment means capital investments should advance the organization's mission, vision, and strategic priorities.

Question 5

A medical center uses a 7% discount rate and evaluates a $500,000 MRI machine expected to generate $110,000 in net cash flows annually for 6 years. The NPV is approximately:

Accepted Answer

$24,000 positive

Answer

PV of annuity ($110,000 at 7% for 6 years) ≈ $524,000; NPV ≈ $524,000 − $500,000 = +$24,000.

(HAC) Healthcare Accounting Certification Practice Test

(HAC) Healthcare Accounting Certification Practice Test

HAC Capital Planning & Investment Analysis 2