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An Evaluation of the Projected Returns to Investors on 10 PFI Projects Commissioned by the National Health Service
Author(s) -
Hellowell Mark,
Vecchi Veronica
Publication year - 2012
Publication title -
financial accountability and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.661
H-Index - 44
eISSN - 1468-0408
pISSN - 0267-4424
DOI - 10.1111/j.1468-0408.2011.00537.x
Subject(s) - finance , private finance initiative , business , capital (architecture) , rate of return , capital budgeting , service (business) , revenue , cost of capital , capital expenditure , economics , actuarial science , private sector , accounting , project appraisal , economic growth , profit (economics) , archaeology , marketing , history , microeconomics
Drawing on the financial models of 10 PFI projects commissioned by the UK National Health Service (NHS), this article identifies the returns that are projected to be earned by private investors and evaluates these through the application of corporate finance methods. The paper begins with a description of the PFI model in the NHS and identifies the risks to which private sector costs and revenues are subject. An analytical framework grounded in capital budgeting techniques is outlined, and used to measure and evaluate investor returns. Cost of capital benchmarks are used as comparators to (1) assess the Internal Rate of Return for each project, and (2) as discount rates to calculate Benefit‐Cost Ratios. On both criteria, returns to investors on this group of PFI projects are shown to be much higher than would be sufficient to remunerate investors for the risk they bear.