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Should penn medical lease the equipment or borrow the money

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Reference no: EM132508627

Question 1: Penn Medical Center, a for-profit hospital, is considering the purchase of a new 64 slice CT scanner. The cost of the new scanner is $5 million and will be depreciated over 10 years on a straight line basis to $0 savage value. The tax rate is 40%. The financing options include either borrowing the full cost of the scanner or leasing a scanner. The lease option is a five-year lease with equal before-tax lease payments of $950,000 per year. The borrowing alternative is a five-year loan covering the entire cost of the scanner at an interest rate of 5%. The after-tax cost of debt is 3%. Should Penn Medical lease the equipment or borrow the money?

Reference no: EM132508627

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