D2

Scenario

Health resources are finite. Therefore, it is incumbent on all health organizations to exercise responsible fiscal decision making when allocating their financial resources.

As the senior cost analyst for a local, nonprofit hospital, you are charged with determining the most appropriate use of financial resources and making recommendations. Your organization is seeking to secure a new CT Scan unit for the expanded emergency department. The hospital has the option of leasing the equipment or purchasing the equipment.

The cost to purchase the CT scan is $1,300,000 at 10% (PV), with straight line depreciation over 5 years. The trade-in value $130,000 at the end of its useful life. The maintenance expense equals $12,000 annually.

The cost to lease the equipment is $26,000 per month for a period of 60 months, which includes all maintenance costs. The tables below provide the financial overview of the purchase and lease costs.

Purchase

Lease

Instructions

In a written case analysis, use the figures provided in the tables to discuss the following: (SEE ATTACHED TABLE)

• Compare and contrast leasing versus purchasing. 
• Calculate the figures relative to the principal payment, interest payment, maintenance expense, total expense, and PV expense and complete the tables below.
• Provide a detailed explanation of the costs associated with leasing the equipment as depicted in the table.
• Provide a detailed explanation of the costs associated with purchasing the equipment as depicted in the table.
• Discuss the potential tax implications of leasing the equipment, assuming that the organization is a nonprofit.
• Discuss the potential tax implications of purchasing the equipment, assuming that the organization is a nonprofit.
• Recommend a course of action and the implications that your recommendation may have for the organization.

Rubric

- Clear and thorough discussion comparing and contrasting leasing versus purchasing. Includes multiple examples to support assertions. 

- Clear and thorough calculations of the figures relative to the principal payment, interest payment, maintenance expense, total expense, and PV expense. 

- Clear and thorough explanation of the costs associated with leasing the equipment as depicted in the tables. 

- Clear and thorough explanation of the costs associated with purchasing the equipment as depicted in the tables. 

- Clear and thorough discussion on the potential tax implications of leasing the equipment. 

- Clear and thorough discussion on the potential tax implications of purchasing the equipment. 

- Comprehensive recommendations for a course of action and the implications that the recommendation may have for the organization.