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FIN United Hospital - for $725,000 This purchase would...

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Operating lease Cash outflow after tax year outflow DF 14% PV 0 223000 1 223,000 1 223000 0.88 195,614 2 223000 0.77 171,591 3 223000 0.67 150,519 4 223000 0.59 132,034 872,758 It is assumed that property tax will be paid at the start of the year Purachase year outflow DF 14% PV 0 125000 1 125,000 1 296000 0.88 259,649 2 264000 0.77 203,139 3 232000 0.67 156,593 5 -225000 0.52 (116,858) 627,524 Option to purcahse is better and recommended as PV of purchase is $245,234 (872,758 - loan payment 1 200000 96000 296000 2 200000 64000 264000 3 200000 32000 232000 tax shield on interest and depreciation has not been considered in decsion making as the rate o -United Hospital has received a leasing proposal from Leasing, Inc., for a Siemens cardiac catheterization unit. The Five-year lease • Annual payments of $200,000 payable one year in advance • Payment of property tax estimated t $23,000 annually • Renewal at end of year 5 at fair market value Alternatively, United Hospital can buy the catheter
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Unformatted text preview: for $725,000. This purchase would require United Hospital to debt-finance this equipment. It anticipates a bank loan initial down payment of $125,000 and a three-year term loan at 16 percent with equal principal payments. The resid the equipment at year 5 is estimated to be $225,000. The lease is treated as an operating lease. Depreciation is ca straight-line basis. Assuming a discount rate of 14 percent, what financing option should United Hospital select? As there is no reimbursement of capital costs.- 627,524) less than that of leased. of tax is not given e terms are: • to be rization unit n with an idual value of alculated on a ssume that...
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