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AHIP AHM-520 Exam - Topic 2 Question 88 Discussion

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
C) The discounted payback method but not the payback method
A) Both the payback method and the discounted payback method
B) The payback method but not the discounted payback method
D) Neither the payback method nor the discounted payback method

AHIP AHM-520 Exam - 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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Hector
8 months ago
10 printers for $30k? That's a steal!
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Sage
8 months ago
Totally agree, they should go for it!
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Coleen
9 months ago
Wait, are those cash inflows really accurate?
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Charlesetta
9 months ago
Sounds like a solid investment if they can save money!
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Hubert
9 months ago
Prism spends $10k a year on printing now.
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Gianna
9 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
10 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
10 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
10 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
10 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
10 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
10 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
10 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
10 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
10 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
10 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
1 year 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
1 year ago
B) The payback method but not the discounted payback method
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Wynell
1 year ago
I agree, the savings from printing in-house seem substantial.
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Lazaro
1 year ago
A) Both the payback method and the discounted payback method
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Nakita
1 year 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
1 year 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
1 year ago
I agree, let's use the payback method and discounted payback method to make an informed decision.
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Stephane
1 year ago
We can't just flip a coin, we need to analyze the data.
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Dan
1 year 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
1 year ago
I agree, with a 15% discount rate, it's definitely worth it.
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Gabriele
1 year ago
A) Both the payback method and the discounted payback method
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Essie
1 year ago
I believe Prism should focus on the payback method since it's their decision rule.
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Lashaunda
1 year 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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Emile
1 year ago
C) The discounted payback method but not the payback method
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Gearldine
1 year ago
I agree, option A seems like the safest bet for Prism.
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Skye
1 year ago
A) Both the payback method and the discounted payback method
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Marti
1 year ago
I'm not so sure about option B, we might be missing out on some important information.
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Ligia
1 year ago
B) The payback method but not the discounted payback method
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Lavera
1 year ago
I think we should go with option A, it seems like the best choice.
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Lawanda
1 year ago
A) Both the payback method and the discounted payback method
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Cory
1 year ago
I agree with you, Ozell. It's important to analyze the investment from different perspectives.
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Ozell
1 year ago
I think Prism should consider both methods to make a decision.
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