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The CEO of a local hospital examines the analysis of capital investment projects for the coming year. She is puzzled by the analysis prepared by
The CEO of a local hospital examines the analysis of capital investment projects for the coming year. She is puzzled by the analysis prepared by her new CFO and inquires about the use of discounted cash flow and notion of the cost of capital. Past practice at this hospital was to perform an accounting-based analysis and to select those projects that "showed a profit." Please use the space below to explain to the CEO why we use DCF and IRR techniques and why using the cost of capital approach is a superior method for evaluating the financial impact of a capital investment project. 100-200 words should be about the right length for this answer. The CEO of a local hospital examines the analysis of capital investment projects for the coming year. She is puzzled by the analysis prepared by her new CFO and inquires about the use of discounted cash flow and notion of the cost of capital. Past practice at this hospital was to perform an accounting-based analysis and to select those projects that "showed a profit." Please use the space below to explain to the CEO why we use DCF and IRR techniques and why using the cost of capital approach is a superior method for evaluating the financial impact of a capital investment project. 100-200 words should be about the right length for this
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