Health care finance Ch10 - Working Capital

ABC Physical Therapy Clinic wants to invest $500,000. What is the future value of the investment compounded at 9 percent for ten years? A. $1,183,682 B. $2,082,205 C. $776,485 D. $1,205,857

A. $1,183,682

XYZ Rehabilitation Center borrows $250,000 for three months at a 5 percent annual interest rate. How much interest will XYZ Rehabilitation Center pay for the loan? A. $3,125 B. $12,500 C. $62,500 D. $4,230

A. $3,125

What does the term "5-15, net 30" mean? A. An organization can receive a 5 percent discount if it pays within 15 days. B. An organization can receive a 15 percent discount if it pays within 5 days. C. An organization can receive a 30 percent discount if it pays between days 5 and 15. D. If an organization pays on day 30, it can receive a discount of 5 to 15 percent.

A. An organization can receive a 5 percent discount if it pays within 15 days.

Where does initial working capital for for-profit healthcare organizations come from? A. The sale of stock B. Philanthropy or tax exempt bonds C. The state legislature D. A governmental entity, in the form of taxes and bonds

A. The sale of stock

Horizontal analysis is a method of reviewing financial performance by A. evaluating line items by looking at percentage changes over time B. comparing important line items to a base number C. computing and showing relationships between important line items D. none of the above

A. evaluating line items by looking at percentage changes over time

Liquidity refers to A. how quickly an asset can be converted into cash B. how quickly a liability can be paid off C. the rate at which a healthcare organization disbursesits cash D. the rate at which a hospital sells its current assets

A. how quickly an asset can be converted into cash

Sunshine Clinic purchases a piece of equipment for $250 with a 2-15 net 30 provision. What is the effective interest rate if the clinic pays on day 16? On day 30? A. 146 percent on day 16; 9.7 percent on day 30 B. 744 percent on day 16; 49.6 percent on day 30 C. 292 percent on day 16; 9.7 percent on day 30 D. 146 percent on day 16; 19.5 percent on day 30

B. 744 percent on day 16; 49.6 percent on day 30

Where does initial working capital for not-for-profit healthcare organizations come from? A. A governmental entity through taxes and bonds B. Philanthropy or tax-exempt bonds C. The sale of stock D. The state legislature

B. Philanthropy or tax-exempt bonds

An organization using trade credits to finance temporary working capital is essentially A. borrowing money from a loan company to finance the purchase of the working capital B. borrowing money from a vendor by delaying payment to the vendor for goods or services already received C. using donated money to finance working capital needs D. none of the above

B. borrowing money from a vendor by delaying payment to the vendor for goods or services already received

Vertical analysis is a method of reviewing financial performance by A. computing and showing relationships between important line items B. comparing important line items to a base number C. evaluating line items by looking at percentage changes over time D. none of the above

B. comparing important line items to a base number

Compounding is a mechanism used to A. consolidate current assets B. determine the amount of income that investments will generate C. determine the amount of income that trade credits will save organizations D. convert current assets into cash

B. determine the amount of income that investments will generate

What are the advantages of having sufficient working capital on hand? A. Organizations are able to pay their employees and vendors on time, thereby maintaining a positive relationship. B. Organizations have sufficient resources to repay loans and are therefore creditworthy. C. Both of the above D. None of the above

C. Both of the above

What are cash flows? A. The difference between the amount of money used internally and the amount of money used for external endeavors B. The difference between liabilities paid in cash and liabilities financed with equity C. The difference between cash receipts and cash disbursements D. None of the above

C. The difference between cash receipts and cash disbursements

The cash conversion cycle is A. The time is will take a hospital to build a building using cash. B. The period is takes the CFO to close the financial accounting records. C. The process of converting resources represented by cash outflows into services and products represented by cash inflows. D. The process of converting accounts receivable into money in the bank.

C. The process of converting resources represented by cash outflows into services and products represented by cash inflows.

Working capital is defined as the A. total amount of functioning equipment in a healthcare organization B. total amount of equipment dedicated to providing patient care C. sum of a healthcare organization's investment in current assets D. sum of a healthcare organization's investment in outside endeavors

C. sum of a healthcare organization's investment in current assets

The average payment period ratio indicates A. how long an organization could meet its obligations if cash receipts were discontinued B. an organization's ability to meet its financial obligations C. the average amount of time that passes before a current liability is paid D. the average amount of time an insurance company takes to pay a claim

C. the average amount of time that passes before a current liability is paid

Examples of current assets include A. inventories B. prepaid expenses C. salaries and wages D. (a) and (b)

D. (a) and (b)

Why do healthcare organizations keep cash on hand? A. For the expected demand to pay employees and vendors in cash B. For emergencies and unexpected purchases C. For the unexpected demand for cash when a vendor offers a price reduction the organization does not want to pass up D. All of the above

D. All of the above

Sources of temporary working capital include A. trade credit B. equity C. debt D. all of the above

D. all of the above

The current ratio indicates A. the average amount of time an insurance company takes to pay a claim B. the average amount of time that passes before a current liability is paid C. how long an organization could meet its obligations if cash receipts were discontinued D. an organization's ability to meet its financial obligations

D. an organization's ability to meet its financial obligations