Journal of Education and Health Promotion

The feasibility study of investment in public hospital construction project using the real options model

Document Type : Original Article

Authors

. Hasan Hematyar
. Ali Akbari Sari
. Davoud Danesh Jafari 1
. Abolghasem Pourreza 2

1 Department of Commercial Economy, Faculty of Economics, Allameh Tabatabai University, Tehran, Iran

2 Department of Health Promotion and Education, School of Public Health, Tehran University of Medical Sciences, Tehran, Iran

Abstract
BACKGROUND: The investment decision can be affected by changing levels of uncertainty and risk.
The main objective of this research was to identify, characterize, and quantify the parameters which
are essential in evaluation hospital construction projects and provide useful modeling techniques to
give the best investment decisions for investors in Iran’s health‑care projects investment.
MATERIALS AND METHODS: The methodology of this study was employing discounted cash
flow (DCF) and real option valuation to investigate the feasibility investment in the public hospital
construction project. The Islamshahr, Mashhad, and Fardis hospitals were included in the analysis.
Economic indices of DCF methods were internal rate of return (IRR) and net present value.
RESULTS: The economic evaluation of the Black–Scholes model was almost as same as the binomial
tree model, but there was a significant difference between the real options model and traditional
methods. According to the traditional methods, the profitability with IRR for Islamshahr, Mashhad,
and Fardis hospital projects was 35%, 43%, and 26%, respectively. Black–Scholes model showed
profitability only for Islamshahr and Mashhad hospitals, and there was no adequate profitability for
investors of Fardis Hospital project during the study.
CONCLUSIONS: The methods derived from the real options valuation could provide a more flexible
and reliable indices for investors in dynamic and high revolution economic conditions. On the other
hand, dynamic economic evaluation models can be applied to correctly evaluate the projects because
of Iran’s health revolution and its health plans.

Keywords

Feasibility
investment
project
public hospital
real options model
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Journal of Education and Health Promotion
Volume 9, Issue 10
October 2019
Pages 1-7

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