2 .The interest rate on a proposed $100 million hospital bond issue would be 5% if current management is in place and would increase to 6% if a greedy group of aggressive managers looking out only for themselves take over the hospital. The annual agency costs associated with the structure of the deal is:

a) $6 million

b) $5 million

c) $1 million

d)There is no agency cost

3. If a firm only has five accounting items amounting to: cash of $10,000, accounts payable of $7,000, office building of $65,000, debt of $46,000, then the amount of owner’s equity is:

a) $22,000

b) $37,000

c) $128,000

d) $75,000

4. A firm has a current ratio of 2.00 and current assets total $800,000. If the firm uses some of its cash balance to pay of a like amount of current liabilities, then the current ratio will be:

a) Increase

b) Decrease

c) Not change

5. If you invest $500 today at an annual interest rate of 8% compounded semi-annually, what will it grow to at the end of five years?

a) $608.35

b) $734.65

c) $740.10

d) $1079.45

6. If the dividend to be paid one year from now is $2.50, the dividend growth rate is 10% and the required return is 15%, using the constant growth dividend discount model the value of stock is:

a) $5

b) $25

c) $50

d) Not meaningful for this set of input data

7. A clinic has direct fixed costs of $110,000, indirect fixed costs of $40,000, variable costs of $40 per patient visit, and charges $65 per visit. How many visits are needed for the clinic to break even?

a) 2,750

b) 3,750

c) 4,400

d) 6,000

8. Flexible expense budgets work best when they are matched with:

a) Flexible revenue budgets

b) Fixed revenue budgets

c) Incremental revenue budgets

d) Zero-base revenue budgets

9. To achieve a low level of risk for a portfolio of two assets, the correlation between the returns for the two assets should be:

a) Positive

b) Negative

c) Zero

d) It doesn’t matter

10. A project has an initial outlay of $100,000, a cash flow of $133,000 at the end of three years, and an IRR of 10%. At a discount rate of 10% the NPV is:

a) Zero

b) $33,100

c) $100,000

d) $ -33,100

11. The number of possible realized outcomes for a decision tree involving four outcomes each year for four years is:

a) 16

b) 96

c) 256

d) 1,024

12. Which one of the following investments would be least appropriate for an endowment fund with current income needs?

a) A U.S. Treasury bond

b) Common stock of Microsoft

c) Common stock of a natural gas distribution company

d) Common stock of General Motors

13. A tax-exempt hospital revenue bond pays interest at a 6% annual rate. If the tax rate for the marginal buyer is 40%, what is the interest rate for the equivalent taxable bond?

a) 6%

b) 8.4 %

c) 10%

d) 15%

14. If a large creditworthy health care firm raises $10 million through an underwritten bond issue, the underwriter’s spread would be about:

a) 20,000

b) $200,000

c) $500,000

d) $2 million

15. Which of the following influence the interest rate paid on long-term debt?

a) Term of maturity

b) Tax status of issuer

c) Liquidity of the issue

d) “A” and “C”

16.  The decision to increase the level of bank reserves is made by:

a) Federal Open Market Committee

b) Board of Governors of the Federal Reserve System

c) Federal Reserve System

d) Alan Greenspan, Chairman of the Fed

17. Which of the following organizations would be most concerned about inventory stock-outs?

a) A hospital

b) A drugstore in a large city

c) A pharmaceutical company

d) A dental supply firm

18. Health care providers using an ABC inventory management system would most likely apply it in conjunction with a just-in-time inventory management system only to those items classified as part of:

a) Group A

b) Group B

c) Group C

d) Groups B and C

19. Trade credit terms quoted as “1/20, net 60” carry an opportunity cost of:

a) 4.5625%

b) 9.125%

c) 18.25%

d) 36.5%

20. When a surgical instrument factory increases the number of instruments produced, this will result in:

a) Economies of sale

b) Economies of scope

c) Synergy

d) Entergy

21. Is a positive price variance on an expense item good or bad? Explain.

22. Is a positive quantity variance on a revenue item good or bad? Explain.

23. What external financing options are open to investor-owned healthcare organizations?

24. Why is having more of a company’s fund in cash or cash equivalents not the best financial plan?

25. What are some motivating factors for mergers and acquisitions in the healthcare industry?

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