20 Feb The Net Present Value (NPV) is a method used in capital budgeting that critically assesses the value an investment is expected to generate over time
The Net Present Value (NPV) is a method used in capital budgeting that critically assesses the value an investment is expected to generate over time (Waxman, 2022). NPV helps to calculate the difference between the present value of expected cash inflows and the present value of cash over a period of time. To calculate the Net Present Value you must subtract the present value of the after-tax outflows from the present value of the after-tax inflows. If the NPV is greater than zero then it is valuable to accept the project. A positive NPV indicates a project is expected to add value and a negative NPV suggests it may erode capital.
Real World Example:
My plan is to open my own urgent care clinic by 2030, an initial investment of %500,000 would be required to cover leasehold improvements, equipment, licensing and marketing. The market analysis should project that the following net cash inflows will be: & the discounted rate with 8% as follows:
Year 1: $100,000 — discounted rate: $92,593
Year 2: $130,000 — discounted rate: $111,482
Year 3: $160,000 — discounted rate: $127,206
Year 4: $180,000 — discounted rate: $132,297
Year 5: $200,000 — discounted rate: $136,755
Total Present Value: $600,333
NPV = $600,333 – $500,000 =$100,333.00
This positive NPV shows that the urgent care clinic can be financially viable. The positive NPV of $100,333 suggests that opening the urgent care clinic would generate value above the initial investment. However, relying solely on NPV for decision-making overlooks serveral critical considerations. The cashflow projections assume steady patient volume and revenue growth. Seasonal demand fluctuations, payer mix change and competition from nearby clinics or hospitals could undermine revenue projections (Bai, et. al., 2021). The 8% discount implemented into the NPV may not fully reflect the cost of borrowing or risk premiums associated with a startup healthcare venture. The proposed $500,000 startup value was indicative of the market value, if the market increases by 2030 then it could increase the initial investment (Ranbhor, Kulkarni, 2025). NPV does not account for operational challenges so strategic alignment is crucial for the clinic. Financial theory to a real-world investment in a healthcare setting is relevant for us as future nurse practitioners who may one day be involved in administrative business options.
References:
Bai, G., Zare, H., Eisenberg, M. D., & Polsky, D. (2021). Trends in the utilization of urgent care centers and telehealth services in the United States, 2016–2019. JAMA Health Forum, 2(10), e213293. https://doi.org/10.1001/jamahealthforum.2021.3293
Miles, D. K., Stedman, M., & Heald, A. H. (2021). “Stay at Home, Protect the National Health Service, Save Lives”: A cost benefit analysis of the lockdown in the United Kingdom. International Journal of Clinical Practice, 75(3), e13674.
Ranbhor, R., & Kulkarni, P. (2025). Evaluating Biosimilar Development Projects: An Analytical Framework Utilizing Net Present Value. Biologics : targets & therapy, 19, 125–135. https://doi.org/10.2147/BTT.S514767
Waxman, K. (2022). Financial and business management for the doctor of nursing practice (3rd ed.). Springer Publishing Company.
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