H353 Healthcare Finance Exam 1
Lump sum compounding - correct answer ✔✔deals with a single starting amt
Compounding - correct answer ✔✔The process of finding the future value of a lump sum, an annuity, or
series of uneven cash flows
3 solutions for solving lump sum problems - correct answer ✔✔1. Regular calculator
2. Financial calculator
3. spreadsheet
How does the FV of lump sum change as time is extended and interest rates increase - correct answer
✔✔
Discounting - correct answer ✔✔the process of finding the PV of a lump sum, annuity, or series of
uneven cash flows
How does the PV of lump sum change as time is extended and interest rates increase? - correct answer
✔✔Longer the time period, lower the PV. Higher rate means smaller PV
Why does an investment have an opportunity cost even when funds employed have no explicit cost? -
correct answer ✔✔Those funds being used could have been used for an alternative
How are opportunity cost rates established? - correct answer ✔✔Determined by the riskiness of the
cash flows being discounted
Does the opportunity cost rate depend on the source of the investment funds? - correct answer ✔✔NO,
not on source but risk and return available
, annuity - correct answer ✔✔series of payments of a fixed amount for a specified number of equal
periods
Difference between ordinary annuity and annuity due? - correct answer ✔✔Ordinary = payments at end
of period
Annuity Due = beginning of each period
Which annuity has the greater FV: Ordinary or Annutiy Due? - correct answer ✔✔FV of annuity due is
greater
Which annuity has the greater PV: Ordinary or Annuity Due? - correct answer ✔✔an annuity due
typically has a higher present value than an ordinary annuity (When interest rates go up, the value of an
ordinary annuity goes down. On the other hand, when interest rates fall, the value of an ordinary
annuity goes up.)
What is a perpetuity? - correct answer ✔✔an annuity in which the cash flows continue forever
What happens to the value of perpetuity when the IR increase or decrease? - correct answer ✔✔If IR
falls, perpetuity value increases
Give 2 examples of financial decisions that typically involve uneven cash flows - correct answer ✔✔Bond
valuation, Financial evaluation of a proposed outpatient clinic or MRI facility
What does NPV mean ? - correct answer ✔✔Sum or net of the PVs of a cash flow stream
What does ROI mean? - correct answer ✔✔Financial attractiveness of deals, 2basic ways (% or $ amt)
Difference between dollar return and rate of return? - correct answer ✔✔cash flow dollar amount vs
rate of return = % return (measure IR that must be earned on the investment to generate expected cash
inflows)
Lump sum compounding - correct answer ✔✔deals with a single starting amt
Compounding - correct answer ✔✔The process of finding the future value of a lump sum, an annuity, or
series of uneven cash flows
3 solutions for solving lump sum problems - correct answer ✔✔1. Regular calculator
2. Financial calculator
3. spreadsheet
How does the FV of lump sum change as time is extended and interest rates increase - correct answer
✔✔
Discounting - correct answer ✔✔the process of finding the PV of a lump sum, annuity, or series of
uneven cash flows
How does the PV of lump sum change as time is extended and interest rates increase? - correct answer
✔✔Longer the time period, lower the PV. Higher rate means smaller PV
Why does an investment have an opportunity cost even when funds employed have no explicit cost? -
correct answer ✔✔Those funds being used could have been used for an alternative
How are opportunity cost rates established? - correct answer ✔✔Determined by the riskiness of the
cash flows being discounted
Does the opportunity cost rate depend on the source of the investment funds? - correct answer ✔✔NO,
not on source but risk and return available
, annuity - correct answer ✔✔series of payments of a fixed amount for a specified number of equal
periods
Difference between ordinary annuity and annuity due? - correct answer ✔✔Ordinary = payments at end
of period
Annuity Due = beginning of each period
Which annuity has the greater FV: Ordinary or Annutiy Due? - correct answer ✔✔FV of annuity due is
greater
Which annuity has the greater PV: Ordinary or Annuity Due? - correct answer ✔✔an annuity due
typically has a higher present value than an ordinary annuity (When interest rates go up, the value of an
ordinary annuity goes down. On the other hand, when interest rates fall, the value of an ordinary
annuity goes up.)
What is a perpetuity? - correct answer ✔✔an annuity in which the cash flows continue forever
What happens to the value of perpetuity when the IR increase or decrease? - correct answer ✔✔If IR
falls, perpetuity value increases
Give 2 examples of financial decisions that typically involve uneven cash flows - correct answer ✔✔Bond
valuation, Financial evaluation of a proposed outpatient clinic or MRI facility
What does NPV mean ? - correct answer ✔✔Sum or net of the PVs of a cash flow stream
What does ROI mean? - correct answer ✔✔Financial attractiveness of deals, 2basic ways (% or $ amt)
Difference between dollar return and rate of return? - correct answer ✔✔cash flow dollar amount vs
rate of return = % return (measure IR that must be earned on the investment to generate expected cash
inflows)
