Accounting Basics Part 4: Net Present Value.

Abstract

MaKing and justitying capital expenditures can be a difficult part of a supervi- sory or managerial position. Understanding more advanced accounting tools for justifying these expenditures, like Internal Rate of Return (IRR) and Net Present Value (NPV), can improve the chances of receiving necessary funding. NPV avoids the weaknesses of the IRR method by allowing decision makers to specify when cash flows will occur instead of assuming that net cash flows will be equal each year ofa project. Taking the time to learn basic account- ing definitions and tools can improve your ability to manage and provide greater opportunities to help patients, staff, and the community.