Cost of capital, target rate of return, and investment decision making

Abstract

Recent attempts to develop an investment decision criterion for nonprofit hospitals that follows that for-profit criteria have resulted in little agreement. Terminological considerations are much to blame for this lack of consensus among researchers in the field. Attempts have been made to identify a "cost of capital" for nonprofit institutions, and to employ this concept in a manner similar to the way it is employed in a for-profit setting. In fact, the application of this concept to nonprofit institutions has resulted in confusion. The use of "target rate of return" in its place would orient the debate more properly toward institutional ends and the means required to achieve them.