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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
Green Valley Medical Center
Young, David W.
Functional Area(s):
   Finance/Financial Management
   Healthcare Management
Difficulty Level: Intermediate
Pages: 8
Teaching Note: Available. 
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First Page and the Assignment Questions:
I don’t object to the priority given to medical equipment by the board of directors. At the same time, though, requests for administrative or support service capital frequently have significant cost-saving potential, and should not continue to be overlooked. There must be some way that these requests can be assessed on their merits without infringing on the hospital’s ability to provide the best possible patient care.

The speaker was DeeAnne Willis, CEO of Green Valley Medical Center (GVMC). She was expressing concern that in her 12 years at the hospital, both administration and support services typically had taken a back seat in the capital budgeting process.

Ms. Willis’ concern was of particular importance to Allen Klein, GVMC’s newly hired chief financial officer, who faced several decisions regarding the hospital’s capital budgeting process. His decisions needed to be made quickly since departmental directors were just weeks away from the October 15 deadline to submit both operating budgets and capital requests.

Mr. Klein already had been approached by various senior managers in the hospital regarding their department requests for capital purchases. All had welcomed Mr. Klein with friendly greetings, followed immediately by informal presentations of their departments’ proposals for new innovative capital improvements. It did not take long for Mr. Klein to realize that he needed to understand better how the capital budgeting process worked, both formally and informally.


GVMC was a 330-bed nonprofit teaching hospital affiliated with a large state university in a mid-size town located several hours from the state’s two urban centers. Established in the 1930s with a federal grant, Green Valley had grown with continuous support from state revenues. It also had issued municipal revenue bonds on several occasions to finance large expansions and improvements. Recent financial statements are contained in Exhibit 1.

Green Valley served a regional patient base of over one million. It was the only regional hospital, and one of only two in the state, with facilities in cardiology, oncology, and neurology. Green Valley’s specialty in these fields included teaching and research as well as clinical care. It prided itself on its state-of-the-art technology and overall medical expertise. In fact, the hospital was widely regarded for the innovative work and research conducted by its medical community, particularly in the neurological and oncological sciences

The Current Capital Budgeting Process

Minimal research acquainted Mr. Klein with the current capital budgeting process at Green Valley. He was delighted to find that the hospital’s available funds for capital purchases had . . .


  1. What are the key elements of GVMC’s strategy?
  2. Why does the existing capital budgeting system need to be changed?
  3. How would the two projects fare under the proposed technique? As part of your assessment, calculate each project’s net present value (NPV) and internal rate of return (IRR) and fill out Exhibit 2. Then complete Exhibit
  4. Assuming only one project can be accepted, which one should it be? Which one do you think will be accepted?