3. Finance

Capital Planning — Quiz

Test your understanding of capital planning with 5 practice questions.

Practice Questions

Question 1

Which capital budgeting method is most appropriate for evaluating projects with unequal lives in healthcare, assuming reinvestment at the cost of capital?

Question 2

A healthcare organization is considering two mutually exclusive projects. Project A has an initial cost of $$ \$500,000 $ and an NPV of $ \$100,000 $. Project B has an initial cost of $ \$700,000 $ and an NPV of $ \$120,000 $. If the organization has a capital budget constraint of $ \$1,000,000 $$, which project(s) should be chosen based on profitability index?

Question 3

In capital planning, what is the primary distinction between 'replacement' and 'expansion' capital investments?

Question 4

A healthcare organization is evaluating a project with an initial investment of $$ \$2,000,000 $. The project is expected to generate annual cash inflows of $ \$400,000 $$ for 8 years. If the organization's required rate of return is 12\%, what is the project's approximate Net Present Value (NPV)? (Use the present value annuity factor for 8 years at 12\% which is approximately 4.968).

Question 5

What is the primary challenge in accurately assessing the 'opportunity cost' of a capital investment in a healthcare setting?