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    Healthcare Finance: NPV and IRR

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    We hear the terms net present value and internal rate of return quite a bit. What are these two investment models? Why do we use them? Do I have to use both? Please read the article: Juhász, L. (2011). NET PRESENT VALUE VERSUS INTERNAL RATE OF RETURN. Economics & Sociology, 4(1), 46-53,126. After reading the article and doing additional research, please respond to the following questions.
    1. What is internal rate of return? What are the advantages and disadvantages of each one?
    2. What is net present value? What are the advantages and disadvantages of each one?
    3. What does the author say about NPV and IRR? Which one is he a proponent of?
    4. Based on his examples, which do you think is a more effective means of making an investment decision NPV or IRR?

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    Solution Preview

    Health Care Finance
    We hear the terms net present value and internal rate of return quite a bit. What are these two investment models? Why do we use them? Do I have to use both? These concepts will be the focus of your assignment for this module. Please read the article: Juhász, L. (2011). NET PRESENT VALUE VERSUS INTERNAL RATE OF RETURN. Economics & Sociology, 4(1), 46-53,126. After reading the article and doing additional research, please respond to the following questions.

    1. What is internal rate of return? What are the advantages and disadvantages of each one?

    The internal rate of return is the interest rate that makes the Net Present Value zero. It is the average annual return earned from a lifetime of investment.
    It is actually the interest rate. For example, the internal rate of return is like the investment that has money going out ( invested or spent) and money coming in (profits, dividends). If more money is coming in than going out, then you make a profit. In another word, the internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. It is also called the discounted cash flow rate of return or simply the rate of return. The IRR is also ...

    Solution Summary

    The internal rate of return is the interest rate that makes the Net Present Value zero. It is the average annual return earned from a lifetime of investment. It is actually the interest rate. For example, the internal rate of return is like the investment that has money going out ( invested or spent) and money coming in (profits, dividends). If more money is coming in than going out, then you make a profit. In another word, the internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments.

    $2.19