Health Care Finance There Is a Clear Essay

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Health Care Finance

There is a clear relationship between the present value and future value factors.

According to the research, "the future value (FV) measures the nominal future sum of money that a given sum of money is worth at a specified timed in the future assuming a certain interest rate, or more generally, rate of return" (Smart Notes 2013). On the other hand, the present value is the exact value that is assigned based on the date of payment or previous series of payments that were made prior to the inquiry. They are related in the notion that they reflect compounding interest, which is the interest rate that is added to the original principle. As such, individuals can compute the potential future value factor using an equation that relates the present value. The equation can be seen below:

(Smart Notes 2013)

Based on this correlative relationship, the present value is impacted as the discount, or interest, rate increases for a given period of time. Here, the research suggests that "as the interest rate (discount rate) and number of periods increase, FV increases or PV decreases" (Smart Notes 2013).

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When interest rates increase, the future value increases, while the present value decreases. These values are important to health care organizations for a number of reasons. Understanding the relationship between future and present value allows healthcare organizations to understand how their investments will play out over the long-term. One of the primary goals of health care facilities is to invest in innovative equipment that will not only improve the quality of care provided, but also hold its value so that it remains a major asset to that facility for as long as possible. These organizations need to know which is better, lump sums for equipment, or deferred future payments. Thus, health care organizations can use the relationship between present and future value to make the best decisions in regards to investments in equipment and new health care programs......

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