7
THE INVESTMENT DECISION

LEARNING OBJECTIVES

• Explain the financial objectives of health care providers
• Evaluate various capital investment alternatives
• Calculate and interpret net present value (NPV)
• Calculate and interpret internal rate of return (IRR)
Capital investment decisions involve large monetary investments expected to achieve long-term benefits for an organization. Such investments, common in health care, fall into three categories:
Strategic decisions: Capital investment decisions designed to increase a health care organization’s strategic (long-term) position (e.g., purchasing physician practices to increase horizontal integration)
Expansion decisions: Capital investment decisions designed to increase the operational capability ...

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