multiple choice questions about Financial Issues In Health Care-

Question 14

Which of the following IS NOT one of the Steps in the DCF Approach?

Determine Free Cash Flows

Calculate Cost of Capital

Present value of terminal value.

Calculate discharge to Bill completion.

Subtract debt and Other Obligations assumed.

Question 15

Which of the following is/are the objectives of budgetary programs defined by the American Hospital Association?

To provide a written expression, in quantitative terms, of the policies and plans of the hospital

To provide a useful tool for the control of costs

To provide a basis for the evaluation of financial

performance in accordance with the plans

To create cost awareness throughout the organization

All of the above

Question 16

Which of the followings IS NOT one of the main phases of the costing process?



Product Specification

Activity Based Costing

Question 17

Which of the following IS NOT an acceptable method of cost allocation?

Step-down method

Simultaneous-equations method

Visual-fit method

Double-distribution method

Question 18

Which of the following two categories of financial information need to be assembled to assess present financial position?

a-Financial statements for the past 3 to 5 years

b-Financial evaluation of the firm, using ratio analysis.

c-Financial level in total assets for the planning period

A and B

B and C

Match the Theories of M&A Activity





1-arises when managers, or agents acting on behalf of the principals (all shareholders), own no shares or only a fraction of the shares of the firm.

2-The most optimistic views about the potential of mergers for social benefits. By merging two companies there is a possibility of lower unit costs, stronger purchasing power, or gaining of management efficiencies.

3-Resulting from increased market share should permit the firm to achieve pricing leverage in its market.

4-Refer to the revaluation of the ownership shares of firms due to new information that is generated during the merger negotiations, the tender offer process, or the joint venture planning.

Match the following definition with the appropriate term.

A-The double-distribution method off cost allocation

B-The high-low method

C-The simple linear regression method (also called least -squares regression)

D-Break even analysis (also called cost-volume-profit analysis)

1-is just a refinement of the step-down method?

2- is a simple technique that can be used to estimate the variable and fixed-cost coefficients of a semi variable cost function.

3-produces estimates of variable cost and fixed cost that minimize the variance between predicted and actual observations.

4-is its ability to quantify the relationships among the previous factors and profit.

Match the following definitions with the appropriate term to classify costs.

A-Direct cost

B-Indirect cost

C-Cost structure

D-Variable cost

E-Fixed cost

1-Such as administrative overhead are not easily traceable to a product or service. They are traced to a product or service using some arbitrary allocation method.

2-The relative proportion of each type of cost present in a firm

3-Do not change in response to changes in volume. They are a function of the passage of time, not output.

4-They are directly linked and assigned to products or services. Include, for example, direct labor and materials.

5-change as output or volume (or some other activity level) changes in a constant, proportional manner.

Match the following definitions with the key term.



c-Responsibilities Centers




1-Defined as a quantitative expression of a plan of action. It is an integral part of the overall management control process of an organization.

2-The third phase of the management control process. Once the decision about which programs to implement has been made and budgets have been developed for them along responsibility center lines, the operations phase begins.

3-The management control phase of primary interest. It is defined as a quantitative expression of a plan of action.

4-Focus of management control efforts. Emphasis is placed on the effectiveness of their operations.

5-Concerned with the relationship between an organization’s outputs and its objectives.

6- The phase of management control that determines the nature and size of programs an organization provides to accomplish its stated goals and objectives.

A-avoidable cost

Match the four type of costs that might be relevant when considering alternative projects.

A-avoidable cost

B-sunk cost

C-incremental cost

D-opportunity cost

1-They are unaffected by the decision under consideration. For example, large portions of cost—depreciation, administrative salaries, insurance, and others

2-They are affected by the decision under consideration. Specifically, they are costs that can be eliminated or saved if an activity is discontinued; they remain only if the activity continues.

3-They represent the change in cost that results from a specific management action. For example, someone might want to know the cost.

4-of signing a managed care contract that would generate 200 new admissions a year.

5-They are values foregone by using a resource in a particular way instead of in its next best alternative way.

Match the key terms with the definitions involved in the capital investment decision process.

A-The capital decision-making process in the healthcare industry

B-A capital expenditure

C-Life cycle costing

D-the profitability index method of capital project evaluation

E-equivalent annual cost

F-A net present value (NPV) analysis

1-Primary value when selecting capital projects for which alternatives exist. Usually, these are capital expenditure projects classified as operational continuance or other.

2-Primary importance in cases when the benefits of the projects are mostly financial, for example, a capital project that saves costs or expands revenue with a primary purpose of increased profits.

3-Useful way to analyze alternative methods of capital financing. In most situations the objective in such a situation is clear: The commodity being dealt with is money, and it is management’s goal to minimize the cost of financing operations.

4-Complex for several reasons. First, a healthcare firm, whether nonprofit or investor owned, is likely to have more complex and less quantifiable objectives than firms in other industries. Second,the number of individuals involved in the process, either directly or indirectly, is likely to be greater in the healthcare industry than in most other industries.

5-A method for estimating the cost of a capital project that reflects total costs, both operating and capital, over the project’s estimated useful life.

6-A commitment of resources that is expected to provide benefits during a reasonably long period, at least 2 or more years.

Question 20

A number of not-for-profit healthcare firms in the United States have established “operating endowments.” The purpose of these funds is to provide a

dependable flow of investment earnings that can be used to supplement expected weaknesses in operating earnings.



Question 21

Businesses maintain cash and investments for four primary purposes:

1. Short-term working capital needs

2. Capital investment needs

3. Contingencies

4. Supplement operating earnings



Match the following definitions of Capital Formation with the respective term

A-Case Statement

B-Designated development officer

C-Program for giving.

D-Prospect Lists

1-This individual may not be a full-time employee, but duties and expectations should be precisely defined. Incentives for development officers should be related to expectations for giving.

2-You should know who in the community is a prime prospect for giving.

3-This is critical. You should have a variety of methods and means to encourage giving. For example, you may have a number of deferred giving plans, such as unitrusts, annuity trusts, or pooled-income funds. Your development officer should be familiar with these methods.

4-This document should carefully and persuasively define why you need money.

Match the following definitions of Working Capital and Cash management with the appropriate term

A-Working Capital

B- The purchasing of resources

C- Collection

D- Billing

1-may be defined as the difference between current assets and current liabilities

2-represents the interval between the release or discharge of a patient and the generation of a bill.

3-represents the interval between the generation of a bill and the actual collection of the cash from the patient or the patient’s third-party payer.

4-relates to the acquisition of supplies and labor, such as the level of inventory necessary to maintain realistic production schedules and the staff required to ensure adequate provision of services

Question 24

Which of the followings IS NOT one of the key characteristics for Long-Term Debt Financing?






Question 25

The amount of money that a nonprofit healthcare firm should reserve for capital assets depends on two factors:

1. Percentage of debt financing to be used

2. Projected future levels of capital expenditures



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