MHA 706 Financial Management Midterm Prep 2026 | 200
Practice Questions with Answers & Explanations | Healthcare
Finance Guide
SECTION A: FINANCIAL MANAGEMENT FOUNDATIONS (Questions 1–50)
1. The primary role of finance in a healthcare organization is to:
A. Prepare financial statements for external reporting
B. Plan for, acquire, and utilize resources to maximize the efficiency and value of the enterprise
C. Ensure compliance with Medicare reimbursement rules
D. Manage day-to-day patient billing and collections
Answer: B
Explanation: The primary role of finance is strategic: planning for, acquiring, and utilizing
resources to maximize efficiency and enterprise value
2. Which of the following is a key characteristic of a business organization?
A. It distributes all profits to charity
B. It obtains financing from the marketplace, uses funds to buy assets, operates assets to provide
goods/services, and sells to create revenue
C. It is exempt from all federal taxes
D. It does not require a formal management structure
Answer: B
Explanation: A business is characterized by obtaining financing, buying assets, operating them to
provide services, and selling to create revenue.
,3. What is the fundamental difference between financial accounting and financial management?
A. There is no difference; the terms are interchangeable
B. Financial accounting focuses on measurement and reporting of past events, while financial
management provides tools for future decision-making
C. Financial management is only concerned with tax preparation
D. Financial accounting is used only by for-profit organizations
Answer: B
Explanation: Accounting concerns the measurement of past financial events, while financial
management provides the theory and tools for making better future financial decisions.
4. In a for-profit (investor-owned) corporation, the primary goal is to:
A. Maximize community health outcomes
B. Maximize shareholder return
C. Minimize employee turnover
D. Achieve the highest possible bond rating
Answer: B
Explanation: The organizational goal of investor-owned corporations is shareholder wealth
maximization.
5. A non-profit organization's primary goal is to:
A. Maximize profits for distribution to owners
B. Minimize tax liability
C. Improve the community and ensure the financial viability of the organization
D. Compete aggressively with for-profit hospitals on price
,Answer: C
Explanation: Non-profits are exempt from taxes and their goal is to improve the community, while
also needing to ensure their own financial viability.
6. The "agency problem" refers to:
A. The conflict between a firm's management and its stockholders
B. The relationship between a healthcare provider and a patient
C. The process of hiring external consultants
D. The regulatory oversight of insurance companies
Answer: A
Explanation: The agency problem is the possibility of conflict of interest between the stockholders
and management of a firm, where managers may act in their own interests instead of the company's.
7. Which of the following is a disadvantage of a sole proprietorship?
A. Ease of formation
B. Limited liability for the owner
C. Unlimited liability for the owner
D. Easy transfer of ownership
Answer: C
Explanation: Disadvantages of sole proprietorships and partnerships include unlimited liability,
limited life, and difficulty raising capital.
8. What is a primary advantage of a corporation over a sole proprietorship?
A. Lower taxes
B. Unlimited liability for owners
C. Unlimited life and easy transfer of ownership
D. Less regulatory oversight
, Answer: C
Explanation: Corporations have the advantages of unlimited life, easy transfer of ownership, and
limited liability for shareholders.
9. Which of the following is a characteristic of a "pure charity"?
A. Its primary goal is to maximize shareholder wealth
B. It is organized for a charitable purpose only, such as the relief of poverty or advancement of
education
C. It must pay corporate income taxes
D. It operates exclusively in the commercial insurance market
Answer: B
Explanation: A pure charity is an undertaking for a charitable purpose only, such as advancing
education, religion, or health, or relieving poverty.
10. The "Four C's" of financial management include all of the following EXCEPT:
A. Cost minimization
B. Cash sufficiency
C. Capital access
D. Customer satisfaction
Answer: D
Explanation: The Four C's are cost minimization, cash sufficiency, capital access, and control of
financial resources.
11. Which of the following best describes a third-party payor system?
A. Patients pay providers directly for all services
B. An entity other than the patient (e.g., an insurance company) pays the provider for services
C. The government provides all healthcare funding
Practice Questions with Answers & Explanations | Healthcare
Finance Guide
SECTION A: FINANCIAL MANAGEMENT FOUNDATIONS (Questions 1–50)
1. The primary role of finance in a healthcare organization is to:
A. Prepare financial statements for external reporting
B. Plan for, acquire, and utilize resources to maximize the efficiency and value of the enterprise
C. Ensure compliance with Medicare reimbursement rules
D. Manage day-to-day patient billing and collections
Answer: B
Explanation: The primary role of finance is strategic: planning for, acquiring, and utilizing
resources to maximize efficiency and enterprise value
2. Which of the following is a key characteristic of a business organization?
A. It distributes all profits to charity
B. It obtains financing from the marketplace, uses funds to buy assets, operates assets to provide
goods/services, and sells to create revenue
C. It is exempt from all federal taxes
D. It does not require a formal management structure
Answer: B
Explanation: A business is characterized by obtaining financing, buying assets, operating them to
provide services, and selling to create revenue.
,3. What is the fundamental difference between financial accounting and financial management?
A. There is no difference; the terms are interchangeable
B. Financial accounting focuses on measurement and reporting of past events, while financial
management provides tools for future decision-making
C. Financial management is only concerned with tax preparation
D. Financial accounting is used only by for-profit organizations
Answer: B
Explanation: Accounting concerns the measurement of past financial events, while financial
management provides the theory and tools for making better future financial decisions.
4. In a for-profit (investor-owned) corporation, the primary goal is to:
A. Maximize community health outcomes
B. Maximize shareholder return
C. Minimize employee turnover
D. Achieve the highest possible bond rating
Answer: B
Explanation: The organizational goal of investor-owned corporations is shareholder wealth
maximization.
5. A non-profit organization's primary goal is to:
A. Maximize profits for distribution to owners
B. Minimize tax liability
C. Improve the community and ensure the financial viability of the organization
D. Compete aggressively with for-profit hospitals on price
,Answer: C
Explanation: Non-profits are exempt from taxes and their goal is to improve the community, while
also needing to ensure their own financial viability.
6. The "agency problem" refers to:
A. The conflict between a firm's management and its stockholders
B. The relationship between a healthcare provider and a patient
C. The process of hiring external consultants
D. The regulatory oversight of insurance companies
Answer: A
Explanation: The agency problem is the possibility of conflict of interest between the stockholders
and management of a firm, where managers may act in their own interests instead of the company's.
7. Which of the following is a disadvantage of a sole proprietorship?
A. Ease of formation
B. Limited liability for the owner
C. Unlimited liability for the owner
D. Easy transfer of ownership
Answer: C
Explanation: Disadvantages of sole proprietorships and partnerships include unlimited liability,
limited life, and difficulty raising capital.
8. What is a primary advantage of a corporation over a sole proprietorship?
A. Lower taxes
B. Unlimited liability for owners
C. Unlimited life and easy transfer of ownership
D. Less regulatory oversight
, Answer: C
Explanation: Corporations have the advantages of unlimited life, easy transfer of ownership, and
limited liability for shareholders.
9. Which of the following is a characteristic of a "pure charity"?
A. Its primary goal is to maximize shareholder wealth
B. It is organized for a charitable purpose only, such as the relief of poverty or advancement of
education
C. It must pay corporate income taxes
D. It operates exclusively in the commercial insurance market
Answer: B
Explanation: A pure charity is an undertaking for a charitable purpose only, such as advancing
education, religion, or health, or relieving poverty.
10. The "Four C's" of financial management include all of the following EXCEPT:
A. Cost minimization
B. Cash sufficiency
C. Capital access
D. Customer satisfaction
Answer: D
Explanation: The Four C's are cost minimization, cash sufficiency, capital access, and control of
financial resources.
11. Which of the following best describes a third-party payor system?
A. Patients pay providers directly for all services
B. An entity other than the patient (e.g., an insurance company) pays the provider for services
C. The government provides all healthcare funding
