A return-based alternative to IRR (internal rates of return) evaluations.
A dilemma often faced by healthcare financial managers is whether to describe a potential investment project to organizational decision-makers in terms of the projects' internal rates of return (IRR) or to use the net present value (NPV) method. The IRR represents an intuitively appealing method of measuring investment value, but a number of conceptual and methodological problems associated with IRR measurement would seem to argue the use of the NPV method. Unfortunately, while the NPV measure is theoretically valid, it lacks the intuitive appeal of the IRR in communicating the value of investment alternatives. This article details an alternative method of measuring return that incorporates all the intuitive appeal of the conventional IRR, but few of the shortcoming associated with that measure.
Kennedy
W F
WF
University of North Carolina, Belk College of Business Administration, Charlotte.
Plath
D A
DA
D002201:Capital Expenditures; D003362:Cost-Benefit Analysis / Q000379:methods*; D005377:Financial Management, Hospital / Q000379:methods*; D007182:Income; D007449:Investments / Q000191:economics*; D015233:Models, Statistical; D014481:United States