Reference no: EM132533072

Question 1 : A home healthcare firm has purchased five automobiles . Each automobile costs $24,000 and has an estimated useful life of 3 years . Each year, the replacement cost of the automobiles is expected to increase 10% . At the end of the third year, replacement cost is $31,944 . The firm anticipates that each automobile will be used to make 1,500 patient visits per year . If the firm prices each visit to recover just the historical cost of the automobiles, it will include a capital cost of $5 .33 per visit ($24,000 divided by 4,500 total visits) . Assuming the revenue generated from this capital charge is invested at 10%, will the firm have enough funds available to meet its replacement cost? How would this situation change if price-level depreciation were used to establish the capital charge?

Question 2 : A health maintenance organization (HMO) has just been formed . During its first year of operations, the organization reported an accounting loss of $500,000 . Cash flow during the same period was a positive $500,000 . How might this situation exist, and which measure better describes financial performance?