Reference no: EM132050564

Presby Memorial Hospital plans to acquire a 3 tesla MRI, with a 5-year MACRS life (but a 10-year useful life), at a cost of $2 million plus $250,000 delivery and installation. Presby can borrow the $2.25 million at 10%, interest only until the repayment in 5 years. Alternatively, Presby can lease the equipment for five years at a rental charge of $460,000 per year, at the beginning of the year. The equipment, when used for five years, will have an estimated net salvage value of $500,000. If Presby buys, it will own the equipment at the end of five years. If Presby leases, it will not exercise the option to buy the equipment. The lease includes maintenance service, whereas if bought, the equipment would require maintenance provided by a service contract for $25,000 per year, at the end of the year. The equipment falls into the MACRS five-year class life (20.00%, 32.00%, 19.20%, 11.52%, 11.52%, 5.76%), and the depreciable basis is the original cost. Presby is not taxed. Determine the Net Advantage to Leasing (NAL) for Presby