Confronting the limitations of a facility built many years ago, the leadership team and board at a small rural hospital must decide how and when to renovate or move into a new building. An academic medical center is considering whether to purchase an expensive piece of technology in the hope of drawing top physicians—and new patients—from throughout the nation. A small physicians’ practice is weighing whether or not to invest in a new computer system.
What factors should play into these decisions? What is the best way to buy capital? How does an organization assure that it is making sound investments? This week, you explore answers to these questions as you examine capital and capital budgeting in health care organizations.
As you focus on capital this week, you analyze the time value of money and conduct a net present value (NPV) analysis. You also compare financing methods for health care equipment purchases.
Assignment: Capital Budgeting
Note: The Instructor will post the document for this Assignment by Day 1 of Week 10.
There are many options to buy capital, including cash purchases, loans, leasing, and other forms of payment. Your goal as a health care manager is to determine which method is best for your organization, given its financial and organizational structure (i.e., for-profit or not-for-profit). Time value of money and net present value are two techniques that may help you determine how and when to invest in new capital. For this Assignment, you examine these concepts as they pertain to the health care industry.
To prepare for this Assignment:
Review the Week 10 Assignment document provided to you by the Instructor. Reflect on concepts of time value of money, net present value, internal rate of return, and purchasing options.
The Assignment:
Using the “Week 10 Assignment Capital Budget Excel Template” answer the questions provided in the week 10 assignment document.
To assist you with this task a Present and Future Values Excel Tutorial has been created (please check your volume settings)
Expert Solution Preview
Factors that should play into decisions regarding whether to renovate or move a hospital include the cost of each option, the feasibility of each option given the current state of the facility, and the potential impact on patients, staff, and the community. A thorough analysis of these factors should be conducted to determine the best course of action.
When considering whether to purchase expensive technology, organizations should weigh the potential benefits, such as attracting top physicians and new patients, against the costs of the technology and any potential risks or drawbacks. A cost-benefit analysis can help to determine whether the investment is worth making.
The best way to buy capital will depend on the financial and organizational structure of the organization. Different methods, including cash purchases, loans, and leasing, may be more or less appropriate depending on the specific circumstances.
To ensure sound investments, organizations should conduct a thorough analysis of potential investments using tools such as time value of money and net present value. This analysis should take into account the potential costs and benefits of the investment, as well as the risks and uncertainties involved. Additionally, organizations should closely monitor the performance of their investments and make adjustments as needed to ensure they continue to be sound.
