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Article: OBJECTIVE RISK ADJUSTMENT IMPROVES CALCULATED ROI FOR CAPITAL PROJECTS.
- Article from:
- Healthcare Financial Management
- Article date:
- December 1, 2000
- Author:
CopyrightCOPYRIGHT 2000 Healthcare Financial Management Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The weighted average cost of capital although widely used in financial decision making, does not ensure an organization will be adequately rewarded for assuming risk.
Most healthcare organizations can ill afford to assume risk for which they are inadequately compensated. When capital projects are being considered, factoring risk with an adjustment to the projected cost of capital can increase the calculated return on investment and improve the net present value of anticipated cash flow. This adjustment factor however should reflect the capital structure of the organization, historical average returns and variance in t he context of the market the specific ...