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AHIP Exam AHM-520 Topic 2 Question 88 Discussion

Actual exam question for AHIP's AHM-520 exam
Question #: 88
Topic #: 2
[All AHM-520 Questions]

In order to print all of its forms in-house, the Prism health plan is considering the purchase of 10 new printers at a total cost of $30,000. Prism estimates that the proposed printers have a useful life of 5 years. Under its current system, Prism spends $10,000 a year to have forms printed by a local printing company. Assume that Prism selects a 15% discount rate based on its weighted-average costs of capital. The cash inflows for each year, discounted to their present value, are shown in the following chart:

Prism will use both the payback method and the discounted payback method to analyze the worthiness of this potential capital investment. Prism's decision rule is to accept all proposed capital projects that have payback periods of four years or less.

After analyzing this information, Prism would accept this proposed capital project under

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Suggested Answer: C

by Zana at May 20, 2024, 09:49 AM

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Sherita
10 months ago
Alright, time to put my finance skills to the test. A PI of 0.45 means the NPV is negative, so the answer is A. Easy peasy, lemon squeezy!
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Kristel
9 months ago
Exactly, it's all about understanding the profitability index and net present value.
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Haydee
9 months ago
That makes sense, Proposal A would be selected if the NPV is less than zero.
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Hana
9 months ago
I think the answer is A, since a PI of 0.45 means the NPV is negative.
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Hailey
10 months ago
Haha, this is a trick question! The PI is just a ranking tool, not an indicator of NPV. The correct answer is D, Proposal B, because the PI for that project is greater than 1, meaning the NPV is positive.
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Brandee
9 months ago
That's right! Proposal B would most likely be selected because its PI is greater than 1, indicating a positive NPV.
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Ruby
9 months ago
Exactly! Proposal B would most likely be selected because of its higher PI.
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Celia
9 months ago
I see what you mean, the PI is just a ranking tool, not a direct indicator of NPV.
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Yolande
9 months ago
Oh, I see! So the PI doesn't directly indicate the NPV, it's just for ranking.
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Gertude
9 months ago
That makes sense, Proposal B would be selected because its PI is greater than 1.
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Earnestine
10 months ago
I think the answer is D, Proposal B, because the PI is greater than 1.
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Skye
10 months ago
I see what you mean, the PI is just a ranking tool, not an indicator of NPV.
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Wilbert
10 months ago
Hmm, I think I'll go with D. Why? Because the higher the PI, the better the project. And 1.05 is definitely higher than 0.45, so Proposal B must be the winner!
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Edison
10 months ago
Yes, Proposal B is the way to go since it has a higher PI, indicating a greater net present value.
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Jackie
10 months ago
I agree with you, Proposal B seems like the better choice with a PI of 1.05.
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Shawn
10 months ago
A profitability index of 0.45 means the NPV is less than zero, so the answer is clearly A. This is a straightforward capital budgeting question.
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Yesenia
10 months ago
That makes sense, Proposal A is the most likely choice with a PI of 0.45.
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Na
10 months ago
A) Proposal A, and the PI indicates that the net present value (NPV) for this project is less than zero
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