The Necessity Of Capital Expenditure

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Introduction and Review Good morning everyone, it is my pleasure to meet again the board members for the third week. As I introduced myself before, I am AbdulRahman Muslihi, a health services manager, with the Certified Public Accounting Firm, Pennypacker & Vandelay, LLC. As we have seen last week, Soft Returns ' 'indirect benefits ' ' ROI can accurately work as indicators to measure intangible benefits, through the three steps: Identifying a process improvement opportunity, create a formula to calculate the benefits, and determine the costs of the process and the net benefits. This week, however, I am going to discuss with you "The Justification of Capital Expenditure". In this subject, we are going to see the net present value and the…show more content…
Attainment of Key Decision Criteria There are two common ways, which are: NPV and Profitability index, are used to evaluate and review investments, through calculating the capital expenditure to select the profitable project. Net Present Value analysis is really common budgeting tool that show the differences between the present value of revenues and the present value of expenses. The project can be profitable when the net present value is positive. In other words, the present value of revenues is greater than the present value of expenses. Profitability index is another tool for evaluating investment projects, which is the ratio of the PV of benefits on the PV of costs. Project can be beneficial if the profitability index is greater than 1. Also, it has the same idea as NPV that In other words, the present value of benefits is greater than the present value of costs. However, these two methods (NPV and Profitability Index) have been used to evaluate the proposal of implementing EMR. Financial Analysis The following table demonstrates the PV of costs, the PV of benefits and the NPV respectively, over 5-year period for the investment: The present value of a cost /benefit is defined as Present Value of cost/benefit = Cost or Benefit in Year n (1 + discount rate) n So, n is the year number. The discount
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