Mercy medical mega center a taxpaying entity has made the

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Reference no: EM13616486

Mercy Medical Mega Center , a taxpaying entity, has made the decision to purchase a new laser surgical device. The device costs $500,000 and will be depreciated on straight-line basis over five years to a zero salvage value. Mercy Medical could borrow the full amount at a 12 percent rate for five years. The after-tax cost of debt equals 8 percent. Alternatively, it could lease the device for five years. The before-tax lease payments per year would be $90,000. The tax rate for this MegaCenter is 40 percent. From a financial perspective, should Mercy lease the surgical device or borrow the money to purchase it?

Reference no: EM13616486

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