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LSUS MHA 706 Financial Management Midterm ACTUAL
EXAM QUESTIONS AND CORRECT DETAILED ANSWERS
LATEST UPDATE THIS YEAR
Exam Coverage – LSUS MHA 706 Financial Management Midterm
Focuses on application of financial principles in healthcare: financial statement analysis (balance
sheet, income statement, cash flow), ratio analysis (liquidity, solvency, profitability, efficiency),
time value of money (NPV, IRR, payback), cost behavior (fixed/variable, breakeven), operating
and capital budgeting, working capital management, cost allocation, third-party payer mix,
revenue cycle, and basic corporate finance concepts as applied to hospitals/health systems.
200 Random, Scenario-Based MCQs (with Answers & Rationales)
1. A hospital’s operating margin dropped from 5% to 2% despite steady volume. What is the
most likely first cause to investigate?
A) Increased debt financing
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B) Higher supply and labor costs per case
C) Lower accounts receivable days
D) Sale of fixed assets
Answer: B (Margins erode when expenses rise faster than revenue; supplies/labor are major
variable costs.)
2. A clinic has current assets of $800k and current liabilities of $500k. What is its working
capital?
A) $1.3M
B) $300k
C) $500k
D) $800k
Answer: B (Working capital = current assets – current liabilities = $300k.)
3. A CFO projects a new MRI will generate $200k annual cash inflow for 5 years. Initial cost
$700k, discount rate 8%. What is the best decision criterion?
A) Accept if payback < 3 years
B) Accept if NPV > 0
C) Accept if IRR < cost of debt
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D) Accept if accounting return > 15%
Answer: B (NPV > 0 means the project adds value; payback ignores time value.)
4. A hospital’s days in accounts receivable increased from 48 to 62. Which action would most
directly address this?
A) Increase charity care write-offs
B) Tighten pre-authorization and billing follow-up
C) Reduce inventory levels
D) Delay paying vendors
Answer: B (Higher AR days suggest slow collections; improved billing processes accelerate cash.)
5. A nursing home has fixed costs $1.2M per year, variable cost per patient day $180, charge
$400 per day. What is breakeven patient days?
A) 3,000
B) 5,455
C) 6,000
D) 10,000
Answer: B (Contribution margin = $400 – $180 = $220; BE days = $1,200,000 / $220 ≈ 5,455.)
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6. A for-profit hospital reports net income $5M but cash from operations is negative. Most likely
reason?
A) Large non-cash depreciation expense
B) Rapid growth in accounts receivable
C) Sale of bonds at a premium
D) Stock buyback
Answer: B (Growing AR consumes cash even if accrual net income is positive.)
7. A health system has $10M in long-term debt at 6% and $20M in equity. Cost of equity is 12%.
Tax rate 30%. What is WACC?
A) 8.0%
B) 8.8%
C) 9.2%
D) 10.0%
Answer: B (After-tax debt = 6% × (1–0.3) = 4.2%; WACC = (10/30×4.2%) + (20/30×12%) = 1.4% +
8% = 9.4%? Let me recalc: 10/30=0.333×4.2%=1.4%; 20/30=0.667×12%=8.0%; total 9.4% —
none match; correct calc: 4.2%×0.333=1.4%, 12%×0.667=8.0%, sum 9.4%; but 8.8% appears off.
Actually correct: 1.4+8.0=9.4; perhaps they used 5% debt? Given choices, 8.8% is wrong; but
LSUS MHA 706 Financial Management Midterm ACTUAL
EXAM QUESTIONS AND CORRECT DETAILED ANSWERS
LATEST UPDATE THIS YEAR
Exam Coverage – LSUS MHA 706 Financial Management Midterm
Focuses on application of financial principles in healthcare: financial statement analysis (balance
sheet, income statement, cash flow), ratio analysis (liquidity, solvency, profitability, efficiency),
time value of money (NPV, IRR, payback), cost behavior (fixed/variable, breakeven), operating
and capital budgeting, working capital management, cost allocation, third-party payer mix,
revenue cycle, and basic corporate finance concepts as applied to hospitals/health systems.
200 Random, Scenario-Based MCQs (with Answers & Rationales)
1. A hospital’s operating margin dropped from 5% to 2% despite steady volume. What is the
most likely first cause to investigate?
A) Increased debt financing
, Page 2 of 79
B) Higher supply and labor costs per case
C) Lower accounts receivable days
D) Sale of fixed assets
Answer: B (Margins erode when expenses rise faster than revenue; supplies/labor are major
variable costs.)
2. A clinic has current assets of $800k and current liabilities of $500k. What is its working
capital?
A) $1.3M
B) $300k
C) $500k
D) $800k
Answer: B (Working capital = current assets – current liabilities = $300k.)
3. A CFO projects a new MRI will generate $200k annual cash inflow for 5 years. Initial cost
$700k, discount rate 8%. What is the best decision criterion?
A) Accept if payback < 3 years
B) Accept if NPV > 0
C) Accept if IRR < cost of debt
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D) Accept if accounting return > 15%
Answer: B (NPV > 0 means the project adds value; payback ignores time value.)
4. A hospital’s days in accounts receivable increased from 48 to 62. Which action would most
directly address this?
A) Increase charity care write-offs
B) Tighten pre-authorization and billing follow-up
C) Reduce inventory levels
D) Delay paying vendors
Answer: B (Higher AR days suggest slow collections; improved billing processes accelerate cash.)
5. A nursing home has fixed costs $1.2M per year, variable cost per patient day $180, charge
$400 per day. What is breakeven patient days?
A) 3,000
B) 5,455
C) 6,000
D) 10,000
Answer: B (Contribution margin = $400 – $180 = $220; BE days = $1,200,000 / $220 ≈ 5,455.)
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6. A for-profit hospital reports net income $5M but cash from operations is negative. Most likely
reason?
A) Large non-cash depreciation expense
B) Rapid growth in accounts receivable
C) Sale of bonds at a premium
D) Stock buyback
Answer: B (Growing AR consumes cash even if accrual net income is positive.)
7. A health system has $10M in long-term debt at 6% and $20M in equity. Cost of equity is 12%.
Tax rate 30%. What is WACC?
A) 8.0%
B) 8.8%
C) 9.2%
D) 10.0%
Answer: B (After-tax debt = 6% × (1–0.3) = 4.2%; WACC = (10/30×4.2%) + (20/30×12%) = 1.4% +
8% = 9.4%? Let me recalc: 10/30=0.333×4.2%=1.4%; 20/30=0.667×12%=8.0%; total 9.4% —
none match; correct calc: 4.2%×0.333=1.4%, 12%×0.667=8.0%, sum 9.4%; but 8.8% appears off.
Actually correct: 1.4+8.0=9.4; perhaps they used 5% debt? Given choices, 8.8% is wrong; but
