Reference no: EM132185328

Mercy Medical Mega Center, a tax paying entity, has made the decision to purchase a new laser surgical device. The device costs $500,000 and will be depreciated on a straight-line basis over five years to a zero-salvage value. Mercy Medical could borrow the full amount at a rate of 8% for five years. The after-tax cost of debt equals 6%. Alternatively, it could lease the device for five years. The before tax lease payments per year would be $110,000. The tax rate is 40%. From a financial perspective, should Mercy lease the surgical device or borrow the money to purchase it? Show your work by comparing purchase and lease options.