AHIP Health Plan Finance and Risk Management AHM-520 Question # 105 Topic 5 Discussion

AHIP Health Plan Finance and Risk Management AHM-520 Question # 105 Topic 5 Discussion

AHM-520 Exam Topic 5 Question 105 Discussion:
Question #: 105
Topic #: 5

The Puma health plan uses return on investment (ROI) and residual income (RI) to measure the performance of its investment centers. Two of these investment centers are identified as X and Y. Investment Center X earns $10,000,000 in operating income on controllable investments of $50,000,000, and it has total revenues of $60,000,000. Investment Center Y earns $2,000,000 in operating income on controllable investments of $8,000,000, and it has total revenues of $10,000,000. Both centers have a minimum required rate of return of 15%.

The following statements are about Puma's evaluation of these investment centers. Select the answer choice containing the correct statement.


A.

Investment Center Y's RI is greater than Investment Center X's RI.


B.

The ROI for Investment Center X is 16.7%, and the ROI for Investment Center Y is 20.0%.


C.

Because Investment Centers X and Y are different sizes, Puma should not use ROI to compare these investment centers.


D.

According to the evaluation of ROI, Investment Center Y achieves a higher return on its available resources than does Investment Center X.


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