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Pharmacoeconomics and Health Outcomes
Group Exercise
Net Present Value
A manager of a community pharmacy is interested in implementing a specialized, diabetic
counseling service. The costs of this program would include costs of remodeling the counseling
area, purchasing patient information and counseling literature, and would require hiring a clinical
pharmacist / faculty member from a local college of pharmacy for a few hours each week.
The manager estimated the costs and increased store profits for this program as shown below.
1. Assuming a comparable interest rate of 5%, compute the net present value of this
program.
It’s not necessary to calculate the actual internal rate of return (IRR) for this exercise –
only to realize that the IRR lies somewhere between 5 and 9%. The project would be a
sound investment if you could borrow money at a rate of 5%, as if you can borrow at a
rate less than your IRR, you’ll make money. However, if you could only borrow money at
9%, this would be a losing proposition (that is, you’d lose money), and the project should
be abandoned.