Financial Healthcare

Student 2: Bertha Hernandez

The Net Present Social Value Model (NPSV) was created with the purpose of evaluating capital investment substitutes in a not-for-profit organizational setting. For the healthcare industry the proper use of this model to conduct the analysis of proposed programs should systematically emphasize on the net present social value plan along with its cash flow stream or purely financial value. Maroun & Lodhia (2017) net present social value represent the assessment of managers of the social value for the program while this model differentiate the capital budget investor-owned business from that not-for-profit business. The project gets approved only with its TNPV is or equal to zero implying that the sum of the project’s social and financial value should not be below zero. Moreover, the NPSV also describe the construction and use of a project scoring matrix while it captures the financial and nonfinancial factors. A discount rate must also be applied to the social value cash flows (Maroun & Lodhia, 2017).

The healthcare manger should avoid investing in projects that have a negative net present value (NPV), but they can participate in project with neutral NPV when there is an association with future intangible and currently immeasurable benefit or where they enable ongoing investment from happening (Wright & Durán, 2020). During this process, the company’s decision-making step the NPV rule should decide whether to pursue the project or not in such case of an acquisition. Further, when the value of outflows is greater than the inflows, the result for the NPV is negative. A negative NPV, means that the money generated in the future is not worth than the initial investment cost.

The NPV is an absolute measure of a project’s profitability indicating the expected change in owners’ wealth from capital investment. Thus, NPV can help identify project that maximize shareholder wealth. Dawar (2018) noted that obviously the advantage of the NPV method takes into account the basic idea that a future dollar is worth less than a dollar today. However, the final advantage are that the NPV method takes into consideration the cost of capital and the risk inherent in making projections about the future. The cash flow projecting future in the future have less impact on the NPV than more predictable cash flows that happen in earlier periods.

References

Dawar, V. (2018). Capital Budgeting Decision Analysis. SAGE Publications: SAGE Business Cases Originals.

Gapenski, L.c., & Reiter, K.L. (2016) Healthcare Finance: An Introduction to Accounting & Financial Management. Sixth Edition.

Maroun, W., & Lodhia, S. (2017). Sustainability and integrated reporting by the public sector and not-for-profit organizations. In Sustainability Accounting and Integrated Reporting (pp. 101-120). Routledge.

Wright, S., & Durán, A. (2020). Decision Analysis. In Understanding Hospitals in Changing Health Systems (pp. 193-220). Palgrave Macmillan, Cham.