MHA702 EXAM 6 CHAPTERS 16-18 STUDY
GUIDE 2026 – COMPLETE CONCEPT REVIEW &
PRACTICE MATERIALS (LATEST EDITION)
This study guide consolidates key concepts from strategic financial planning and capital
management for healthcare organizations. It covers the development of long-term financial
plans, the process of capital budgeting, and the methods for funding major investments.
Mastering these chapters is essential for making informed, data-driven decisions regarding an
organization's future growth, service offerings, and financial sustainability in a complex
healthcare environment.
Key Words: Strategic Financial Planning, Capital Budgeting, Pro Forma Statements, Cost of
Capital, Debt Financing
Q1: What is the primary goal of strategic financial planning in a healthcare organization?
A) To maximize physician salaries in the current year
B) To align financial resources with the organization's long-term mission and objectives
C) To minimize the number of employees on staff
D) To reduce patient wait times at all costs
Q2: Which of the following is a critical input for creating a long-term financial plan?
A) Daily cafeteria menus
B) The strategic plan and its associated service and capital requirements
C) Last month's staff meeting minutes
D) Competitor organizations' employee benefits packages
Q3: A multi-year projection of an organization's financial statements is best described as:
A) A balance sheet
B) A pro forma statement
C) An income statement
D) A cash flow budget
Q4: What is the purpose of a capital budget?
A) To plan for routine operating expenses like salaries and utilities
B) To evaluate and plan for expenditures on long-term assets like buildings and equipment
,C) To track daily cash receipts from patients
D) To allocate funds for annual marketing campaigns
Q5: Which capital budgeting method calculates the number of years required to recover an
investment's initial cost?
A) Net Present Value (NPV)
B) Internal Rate of Return (IRR)
C) Payback Period
D) Modified Internal Rate of Return (MIRR)
Q6: The Net Present Value (NPV) capital budgeting method primarily accounts for which key
financial principle?
A) The time value of money
B) The simplicity of calculation
C) The accounting rate of return
D) The payback period in months
Q7: A proposed project with a calculated NPV of $500,000 should be interpreted as:
A) The project will lose $500,000.
B) The project is expected to increase the organization's value by $500,000 in today's dollars.
C) The project's payback period is 5 years.
D) The project's IRR is 5%.
Q8: The Internal Rate of Return (IRR) is defined as the discount rate that:
A) Makes the NPV of a project equal to zero.
B) Equals the organization's payback period.
C) Is set by the board of directors.
D) Represents the project's average annual profit.
Q9: When the NPV and IRR methods provide conflicting rankings for mutually exclusive
projects, which method is generally considered more reliable?
A) Internal Rate of Return (IRR)
B) Payback Period
C) Net Present Value (NPV)
D) Accounting Rate of Return
Q10: What does the term "cost of capital" represent for an organization?
A) The price of its latest medical equipment purchase
B) The minimum return required to justify an investment, reflecting its financing costs
,C) The total operating expenses for the fiscal year
D) The cost of malpractice insurance
Q11: Which of the following is a typical source of debt financing for a hospital's new wing?
A) Issuing new shares of common stock
B) Using retained earnings from operations
C) Securing a long-term tax-exempt bond issue
D) Cutting the annual research budget
Q12: What is a key advantage of using debt financing (e.g., bonds) for a capital project?
A) It never has to be repaid.
B) Interest payments are typically tax-deductible, reducing the net cost.
C) It dilutes the ownership of existing stakeholders.
D) It requires no formal approval process.
Q13: Equity financing for a not-for-profit healthcare organization can come from which
source?
A) Issuing corporate stock to public investors
B) Philanthropic donations and grants
C) Securing a bank loan
D) Issuing municipal bonds
Q14: In capital budgeting, what does a "profiled project" typically refer to?
A) A project that is politically popular
B) A large, high-cost, and high-risk strategic initiative
C) A project with a very short payback period
D) The annual equipment maintenance plan
Q15: The final step in the capital budgeting decision-making process is usually:
A) Conducting a post-audit or project review
B) Announcing the decision in a press release
C) Calculating the initial payback period
D) Securing financing from a single source
Q16: Which of these is NOT a common type of pro forma statement used in financial
planning?
A) Pro Forma Income Statement
B) Pro Forma Balance Sheet
C) Pro Forma Statement of Cash Flows
D) Pro Forma Statement of Employee Satisfaction
, Q17: A financial plan that models different scenarios (e.g., best case, worst case, most likely)
is engaging in:
A) Fraudulent reporting
B) Scenario analysis (sensitivity analysis)
C) Payback analysis
D) Debt covenant calculation
Q18: Why is the cost of capital used as the discount rate in NPV calculations?
A) It is the easiest number to find.
B) It represents the hurdle rate the project must exceed to be worthwhile.
C) It is always equal to the interest rate on a bank loan.
D) It is mandated by Medicare.
Q19: A project with an IRR of 8% when the organization's cost of capital is 10% should be:
A) Accepted, because 8% > 0%
B) Rejected, because the IRR is less than the cost of capital.
C) Accepted, because it has a positive IRR.
D) Rejected, because the payback period is too long.
Q20: Which factor is LEAST relevant when a hospital's finance committee evaluates a major
equipment purchase?
A) The equipment's projected impact on patient care quality and revenue.
B) The color of the equipment to match hospital decor.
C) The lifecycle costs, including maintenance and supplies.
D) The availability of financing at a reasonable cost.
Q21: What is the primary focus of Chapter 16's content on strategic financial planning?
A) Managing daily cash flow fluctuations
B) Translating strategic initiatives into quantified financial plans
C) Preparing annual departmental budgets
D) Calculating employee overtime pay
Q22: In pro forma development, what is typically the "driver" for projecting revenue?
A) Last year's revenue adjusted for inflation
B) Volume forecasts (e.g., patient days, procedures) and reimbursement rates
C) The CEO's revenue target
D) The amount of debt the organization can secure
Q23: Which statement best describes a capital investment decision?
A) A decision about hiring temporary nursing staff.
GUIDE 2026 – COMPLETE CONCEPT REVIEW &
PRACTICE MATERIALS (LATEST EDITION)
This study guide consolidates key concepts from strategic financial planning and capital
management for healthcare organizations. It covers the development of long-term financial
plans, the process of capital budgeting, and the methods for funding major investments.
Mastering these chapters is essential for making informed, data-driven decisions regarding an
organization's future growth, service offerings, and financial sustainability in a complex
healthcare environment.
Key Words: Strategic Financial Planning, Capital Budgeting, Pro Forma Statements, Cost of
Capital, Debt Financing
Q1: What is the primary goal of strategic financial planning in a healthcare organization?
A) To maximize physician salaries in the current year
B) To align financial resources with the organization's long-term mission and objectives
C) To minimize the number of employees on staff
D) To reduce patient wait times at all costs
Q2: Which of the following is a critical input for creating a long-term financial plan?
A) Daily cafeteria menus
B) The strategic plan and its associated service and capital requirements
C) Last month's staff meeting minutes
D) Competitor organizations' employee benefits packages
Q3: A multi-year projection of an organization's financial statements is best described as:
A) A balance sheet
B) A pro forma statement
C) An income statement
D) A cash flow budget
Q4: What is the purpose of a capital budget?
A) To plan for routine operating expenses like salaries and utilities
B) To evaluate and plan for expenditures on long-term assets like buildings and equipment
,C) To track daily cash receipts from patients
D) To allocate funds for annual marketing campaigns
Q5: Which capital budgeting method calculates the number of years required to recover an
investment's initial cost?
A) Net Present Value (NPV)
B) Internal Rate of Return (IRR)
C) Payback Period
D) Modified Internal Rate of Return (MIRR)
Q6: The Net Present Value (NPV) capital budgeting method primarily accounts for which key
financial principle?
A) The time value of money
B) The simplicity of calculation
C) The accounting rate of return
D) The payback period in months
Q7: A proposed project with a calculated NPV of $500,000 should be interpreted as:
A) The project will lose $500,000.
B) The project is expected to increase the organization's value by $500,000 in today's dollars.
C) The project's payback period is 5 years.
D) The project's IRR is 5%.
Q8: The Internal Rate of Return (IRR) is defined as the discount rate that:
A) Makes the NPV of a project equal to zero.
B) Equals the organization's payback period.
C) Is set by the board of directors.
D) Represents the project's average annual profit.
Q9: When the NPV and IRR methods provide conflicting rankings for mutually exclusive
projects, which method is generally considered more reliable?
A) Internal Rate of Return (IRR)
B) Payback Period
C) Net Present Value (NPV)
D) Accounting Rate of Return
Q10: What does the term "cost of capital" represent for an organization?
A) The price of its latest medical equipment purchase
B) The minimum return required to justify an investment, reflecting its financing costs
,C) The total operating expenses for the fiscal year
D) The cost of malpractice insurance
Q11: Which of the following is a typical source of debt financing for a hospital's new wing?
A) Issuing new shares of common stock
B) Using retained earnings from operations
C) Securing a long-term tax-exempt bond issue
D) Cutting the annual research budget
Q12: What is a key advantage of using debt financing (e.g., bonds) for a capital project?
A) It never has to be repaid.
B) Interest payments are typically tax-deductible, reducing the net cost.
C) It dilutes the ownership of existing stakeholders.
D) It requires no formal approval process.
Q13: Equity financing for a not-for-profit healthcare organization can come from which
source?
A) Issuing corporate stock to public investors
B) Philanthropic donations and grants
C) Securing a bank loan
D) Issuing municipal bonds
Q14: In capital budgeting, what does a "profiled project" typically refer to?
A) A project that is politically popular
B) A large, high-cost, and high-risk strategic initiative
C) A project with a very short payback period
D) The annual equipment maintenance plan
Q15: The final step in the capital budgeting decision-making process is usually:
A) Conducting a post-audit or project review
B) Announcing the decision in a press release
C) Calculating the initial payback period
D) Securing financing from a single source
Q16: Which of these is NOT a common type of pro forma statement used in financial
planning?
A) Pro Forma Income Statement
B) Pro Forma Balance Sheet
C) Pro Forma Statement of Cash Flows
D) Pro Forma Statement of Employee Satisfaction
, Q17: A financial plan that models different scenarios (e.g., best case, worst case, most likely)
is engaging in:
A) Fraudulent reporting
B) Scenario analysis (sensitivity analysis)
C) Payback analysis
D) Debt covenant calculation
Q18: Why is the cost of capital used as the discount rate in NPV calculations?
A) It is the easiest number to find.
B) It represents the hurdle rate the project must exceed to be worthwhile.
C) It is always equal to the interest rate on a bank loan.
D) It is mandated by Medicare.
Q19: A project with an IRR of 8% when the organization's cost of capital is 10% should be:
A) Accepted, because 8% > 0%
B) Rejected, because the IRR is less than the cost of capital.
C) Accepted, because it has a positive IRR.
D) Rejected, because the payback period is too long.
Q20: Which factor is LEAST relevant when a hospital's finance committee evaluates a major
equipment purchase?
A) The equipment's projected impact on patient care quality and revenue.
B) The color of the equipment to match hospital decor.
C) The lifecycle costs, including maintenance and supplies.
D) The availability of financing at a reasonable cost.
Q21: What is the primary focus of Chapter 16's content on strategic financial planning?
A) Managing daily cash flow fluctuations
B) Translating strategic initiatives into quantified financial plans
C) Preparing annual departmental budgets
D) Calculating employee overtime pay
Q22: In pro forma development, what is typically the "driver" for projecting revenue?
A) Last year's revenue adjusted for inflation
B) Volume forecasts (e.g., patient days, procedures) and reimbursement rates
C) The CEO's revenue target
D) The amount of debt the organization can secure
Q23: Which statement best describes a capital investment decision?
A) A decision about hiring temporary nursing staff.
