AHIP AHM-520 Exam - Topic 2 Question 88 Discussion

Actual exam question for AHIP's AHM-520 exam

Question #: 88
Topic #: 2

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

ABoth the payback method and the discounted payback method

BThe payback method but not the discounted payback method

CThe discounted payback method but not the payback method

DNeither the payback method nor the discounted payback method

Show Suggested Answer

Suggested Answer: C

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

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Hector

4 months ago

10 printers for $30k? That's a steal!

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Sage

4 months ago

Totally agree, they should go for it!

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Coleen

4 months ago

Wait, are those cash inflows really accurate?

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Charlesetta

4 months ago

Sounds like a solid investment if they can save money!

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Hubert

5 months ago

Prism spends $10k a year on printing now.

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Gianna

5 months ago

If I remember right, if the payback period is less than four years, Prism should accept the project. But I’m a bit confused about how the discount rate plays into the discounted payback method.

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Pamella

5 months ago

I think I recall that the discounted payback method accounts for the time value of money, which might make the project less appealing. I hope I remember the calculations correctly!

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Lawrence

5 months ago

I feel like the payback method will definitely show a positive result since the investment is under four years, but I’m not so sure about the discounted payback method. Did we cover how to calculate that exactly?

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Bok

5 months ago

I remember we practiced a similar question about evaluating capital investments using payback periods. I think the payback method is straightforward, but I'm unsure about how the discounted payback method affects the decision.

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Serina

5 months ago

Okay, I think I've got this. I'll start by calculating the undiscounted payback period, which should be pretty simple since the annual cash inflows are constant. Then I'll discount the cash flows and recalculate the payback period to see if it still meets the 4-year requirement.

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Salena

5 months ago

Hmm, I'm a little confused about the cash flow information provided. Do I need to discount the annual savings of $10,000 to get the present value? And how do I factor in the initial $30,000 cost?

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Alpha

5 months ago

This looks like a pretty straightforward capital budgeting problem. I'll need to calculate the payback period and discounted payback period to see if the project meets Prism's decision rule.

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Ligia

6 months ago

This seems straightforward enough. As long as I can get the payback period calculated correctly, I should be able to determine whether Prism would accept the project under their decision rule.

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Veronika

6 months ago

Ah, good point about needing the time range - that's an important detail I wouldn't have considered on my own.

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Georgene

6 months ago

I've got this! The key is using the right options and putting them in the correct order. I'm confident I can nail this question.

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Kiley

6 months ago

This one seems straightforward - risk reassessment is definitely part of the risk monitoring and control process, so I'll go with option B.

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Miss

10 months ago

If Prism can save $10,000 a year by printing in-house, that's a pretty sweet deal. I bet the beancounters are already salivating at the thought of all those sweet, sweet savings.

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Lorrie

9 months ago

B) The payback method but not the discounted payback method

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Wynell

9 months ago

I agree, the savings from printing in-house seem substantial.

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Lazaro

10 months ago

A) Both the payback method and the discounted payback method

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Nakita

11 months ago

Oh man, I hate doing all these calculations. Can't we just flip a coin and make a decision? I'm kidding, of course. Let's get to work and figure this out.

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Jacklyn

10 months ago

It looks like Prism would accept this proposed capital project under both the payback method and the discounted payback method.

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Delila

10 months ago

I agree, let's use the payback method and discounted payback method to make an informed decision.

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Stephane

10 months ago

We can't just flip a coin, we need to analyze the data.

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Dan

11 months ago

With a 15% discount rate, this project seems like a no-brainer. As long as the discounted payback is under 4 years, I'd say go for it!

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Stanford

10 months ago

I agree, with a 15% discount rate, it's definitely worth it.

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Gabriele

10 months ago

A) Both the payback method and the discounted payback method

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Essie

11 months ago

I believe Prism should focus on the payback method since it's their decision rule.

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Lashaunda

11 months ago

The payback period looks good at less than 4 years, but the discounted payback might tell a different story. I'll have to crunch the numbers to be sure.

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