Question
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 the notion of the cost of capital. Past practice at this hospital was to perform an accounting-based analysis and to select projects that "showed a profit." Please use the space below to explain to the CEO why we use DCF and IRR techniques and why knowing and applying the cost of capital is a superior method for assessing the financial impact of a capital investment project.
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