LSUS MHA 706 Module 6 Quiz
Financial Planning, Variance Formulas, and Capital
Budgeting Analysis
2026/2027 | Newly Released
Q & A with Rationales |Guaranteed pass |100% Correct
Q1: The primary decision rule for Net Present Value (NPV) is that a project should be
accepted if:
A. The payback period is shorter than the project's life.
B. The internal rate of return is zero.
C. The NPV is greater than or equal to zero. [CORRECT]
D. The discount rate is lower than the inflation rate.
Correct Answer: C
Rationale: An NPV greater than or equal to zero indicates that the project's expected
returns meet or exceed the cost of capital, adding value to the organization.
Q2: Which budget is considered the "foundation" of the operating budgeting process
because it forecasts the volume of future activity, such as patient days and clinic visits?
A. Revenue Budget
B. Statistics Budget [CORRECT]
C. Expense Budget
D. Cash Budget
Correct Answer: B
,Rationale: The Statistics Budget provides the essential volume drivers (e.g., number of
surgeries, lab tests) that are required to accurately calculate both revenues and
expenses.
Q3: CALCULATION: A piece of medical equipment costs $120,000. It is expected to
generate cash savings of $40,000 per year. What is the Payback Period?
A. 3.0 years [CORRECT]
B. 2.5 years
C. 4.0 years
D. 0.33 years
Correct Answer: A
Rationale: The Payback Period is calculated by dividing the initial investment by the
annual cash inflow ($120,000 / $40,000 = 3.0 years).
Q4: A hospital is undergoing a major restructuring and wants to ensure that all expenses
are critically evaluated and justified for the upcoming fiscal year, rather than just
adjusting last year's budget. Which budgeting method should they use?
A. Incremental Budgeting
B. Flexible Budgeting
C. Zero-Based Budgeting (ZBB) [CORRECT]
D. Static Budgeting
Correct Answer: C
Rationale: Zero-Based Budgeting requires managers to build their budgets from a
"zero base" and justify every expense, making it ideal for restructuring or cost -control
initiatives.
, Q5: How does the Discounted Payback Period differ from the traditional Payback
Period?
A. It ignores the time value of money.
B. It discounts future cash flows to their present value before calculating the
recovery time. [CORRECT]
C. It always results in a longer payback period than the traditional method.
D. It is used exclusively for equity financing decisions.
Correct Answer: B
Rationale: The Discounted Payback Period accounts for the time value of money by
discounting cash flows, providing a more accurate measure of how long it takes to
recover the investment in real dollar terms.
Q6: CALCULATION: Calculate the Profit Variance using the following data:
Actual Profit: $250,000
Static Budget Profit: $220,000
A. $30,000 Unfavorable
B. $30,000 Favorable [CORRECT]
C. $470,000 Favorable
D. $220,000 Favorable
Correct Answer: B
Rationale: Profit Variance is calculated as Actual Profit minus Static Profit ($250,000
- $220,000 = $30,000). Since actual profit is higher, the variance is Favorable.
Financial Planning, Variance Formulas, and Capital
Budgeting Analysis
2026/2027 | Newly Released
Q & A with Rationales |Guaranteed pass |100% Correct
Q1: The primary decision rule for Net Present Value (NPV) is that a project should be
accepted if:
A. The payback period is shorter than the project's life.
B. The internal rate of return is zero.
C. The NPV is greater than or equal to zero. [CORRECT]
D. The discount rate is lower than the inflation rate.
Correct Answer: C
Rationale: An NPV greater than or equal to zero indicates that the project's expected
returns meet or exceed the cost of capital, adding value to the organization.
Q2: Which budget is considered the "foundation" of the operating budgeting process
because it forecasts the volume of future activity, such as patient days and clinic visits?
A. Revenue Budget
B. Statistics Budget [CORRECT]
C. Expense Budget
D. Cash Budget
Correct Answer: B
,Rationale: The Statistics Budget provides the essential volume drivers (e.g., number of
surgeries, lab tests) that are required to accurately calculate both revenues and
expenses.
Q3: CALCULATION: A piece of medical equipment costs $120,000. It is expected to
generate cash savings of $40,000 per year. What is the Payback Period?
A. 3.0 years [CORRECT]
B. 2.5 years
C. 4.0 years
D. 0.33 years
Correct Answer: A
Rationale: The Payback Period is calculated by dividing the initial investment by the
annual cash inflow ($120,000 / $40,000 = 3.0 years).
Q4: A hospital is undergoing a major restructuring and wants to ensure that all expenses
are critically evaluated and justified for the upcoming fiscal year, rather than just
adjusting last year's budget. Which budgeting method should they use?
A. Incremental Budgeting
B. Flexible Budgeting
C. Zero-Based Budgeting (ZBB) [CORRECT]
D. Static Budgeting
Correct Answer: C
Rationale: Zero-Based Budgeting requires managers to build their budgets from a
"zero base" and justify every expense, making it ideal for restructuring or cost -control
initiatives.
, Q5: How does the Discounted Payback Period differ from the traditional Payback
Period?
A. It ignores the time value of money.
B. It discounts future cash flows to their present value before calculating the
recovery time. [CORRECT]
C. It always results in a longer payback period than the traditional method.
D. It is used exclusively for equity financing decisions.
Correct Answer: B
Rationale: The Discounted Payback Period accounts for the time value of money by
discounting cash flows, providing a more accurate measure of how long it takes to
recover the investment in real dollar terms.
Q6: CALCULATION: Calculate the Profit Variance using the following data:
Actual Profit: $250,000
Static Budget Profit: $220,000
A. $30,000 Unfavorable
B. $30,000 Favorable [CORRECT]
C. $470,000 Favorable
D. $220,000 Favorable
Correct Answer: B
Rationale: Profit Variance is calculated as Actual Profit minus Static Profit ($250,000
- $220,000 = $30,000). Since actual profit is higher, the variance is Favorable.
