Student 1: Shanelle Berry
The net present value is normally utilized by many companies based on its systematic representation of capital budgeting in which provide the most accurate financial details pertaining to the financial risk involved for possible new capital assignments or tasks to take one. This process is useful as the projects that the company is taking on is casually large in the financial value to cover the operation. Factors that are important to consider completing a task includes the timeframe and cost related expectation of capital in which if the financial outcome is positive, it is okay to continue with the project but if it is a negative factor, then it is best to either put it on hold for a later date or not take the risk at all (Gapenski, & Reiter, 2016)
For capital projects, the proper budgeting is necessary in order to see factors related to how the overall cash flow will be affected which excludes independent projects. Mutually exclusive projects on the other hand requires for only one project to be invested in at a time in which excludes all other possible projects. For independent projects, the net present value is acceptable when greater than $0 and for mutually exclusive projects, it is expected to weigh the net present value of each project and to invest in the project is when provides a higher net present value. Other decisions to consider in the process is the payback period for the invested project as well the discounted period (Rich, Rose, & Delaney, 2018).
The net present social value promotes that the total value of the project is equal to the net present value in addition to the social value and is calculated by adding the present value of the expected future social value along with the net present value. The present value method for future cost and aid for project investment, magnifying on the work future as it is a planning method in which assist with decision making for possible risk that the company may encounter. Such social factors such as the economy and the environment is compared to what currently is and what is expected to be to then determine if the investment is better to complete in the current financial condition or it will be more beneficial in the future for upfront investment opportunities (Illés, 2012).
Gapenski, L.c., & Reiter, K.L. (2016) Healthcare Finance: An Introduction to Accounting & Financial Management. Sixth Edition
Illés, M. (2012). Links Between Net Present Value and Shareholder Value from a Business Economics Perspective. Theory, Methodology, Practice, 8(2), 31-36. https://www.proquest.com/scholarly-journals/links-between-net-present-value-shareholder/docview/1696725104/se-2?accountid=35796
Rich, S. P., Rose, J. T., & Delaney, C. J. (2018). NET PRESENT VALUE ANALYSIS IN FINANCE AND REAL ESTATE: A CLASH OF METHODOLOGIES. Journal of Real Estate Portfolio Management, 24(1), 83-94. https://www.proquest.com/scholarly-journals/net-present-value-analysis-finance-real-estate/docview/2023956152/se-2?accountid=35796
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.
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.