Compare and contrast leasing versus purchasing. You may use the Rasmussen library to research articles addressing lease versus purchase decisions in order to support your assertions.

Lease Versus Purchase Dr. M. Point

Module Two Deliverable

HSA6900

MOTIVATIONAL

QUOTE

Welcome to

Module Two

• Welcome to Module Two

• The competency for this

module is: Analyze

financial information for

the purpose of making

viable management

decisions.

Module Two

• Lease versus Purchase

• Lexus RX350

• Purchase Price $49,750.00 base price

• 2.49% for 48 mos.

Bank Loan Key

terms

• Principal of the loan –

the amount of loan to

be paid back

• Interest – the cost of

borrowing money

Should I Lease Instead?

• Lease term – the amount of time that

you will lease the vehicle – typically 2 –

5 years.

• The longer the term, the lower the

monthly payment, but the more you pay

long-term

Leasing

• A lease is a contract outlining the

terms under which one party agrees

to rent property owned by another

party.

What is a

purchase?

• Purchase decisions for

equipment in health

organizations

• Assume for this

assignment that the

purchase is being financed

Lease Versus Purchase The decision to lease versus purchase of equipment can be a very detailed, thought provoking process with many layers.

Common decisions are used by health organizations for capital equipment

Scenario

• Health resources are finite. Therefore, it

is incumbent on all health organizations

to exercise responsible fiscal decision

making when allocating their financial

resources.

Scenario, Part Two

• 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.

Scenario, Part Three

• 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.

Instructions

• In a written case analysis, use the figures provided in the tables to discuss the

following:

• Compare and contrast leasing versus purchasing. You may use the Rasmussen

library to research articles addressing lease versus purchase decisions in order to

support your assertions.

• Calculate the figures relative to the principal payment, interest payment, maintenance

expense, total expense, and PV expense and complete the tables linked here

Instructions,

Part Two

Discuss Discuss the potential tax implications of leasing the equipment, assuming that the organization is a nonprofit.

Provide Provide a detailed explanation of the costs associated with purchasing the equipment as depicted in the table.

Provide Provide a detailed explanation of the costs associated with leasing the equipment as depicted in the table.

Instructions, Part Three

• 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.

Calculations

Purchase

Total cost = $1.3 M / 5 years= Annual Cost amount

• Year one: = $130K (balance is $1.3 M)

• Year two: = $104K (balance of $1.3M – Principal Payment Year 1 of $X)

• Remember, principal payment remains the same each year; it’s the annual cost amount for the 5 years

Interest payment equals 10% on annual BALANCE

Year Principal

Payment (A)

New

Balance

(A1)

Interest

Payment (B)

Maintenan

ce Expense

(C)

Total

Expense (D)

PV

Factor

@ 10%

(E)

PV Expense

(F)

1 INITIAL BAL

divided by #

of years to be

financed

$1.3M 10% of Loan

Balance

Given Sum of PP, IP,

and ME

A + B + C =

D

Given Total Exp x PV

Factor

D x E = F

2 INITIAL BAL

divided by #

of years to be

financed

$1.3M –

Principal

Payment

= New

Balance

Yr 2

Remaining

Bal – amount

in box 2A

3 INITIAL BAL

divided by #

of years to be

financed

Do this for 5

years (2 more

years)

New Bal

from Yr 2

– PP =

New

Balance

for Yr 3

Remaining

Bal – amount

Scenario – The Calculations

Lease

• $26,000 for a period of 5 years

• Maintenance is Included

Purchase

• $1.3 Million

• 10% interest

• Straight Line Depreciation for 5 years

• Fixed maintenance expense of $12K per year

Scenario, Part Two (Calculations)

• Lease

• $26K per month x 12 months = This amount will be consistent for each year

• PV – Please see table

• PV Exp = Lease payment x PV Factor

• You will need to calculate PV Exp for each year based on the results. For instance,

Year 1’s PV exp = the annual lease payment (which is the $26K x 12 months) x the

PV factor for that year. The present value exp. Column is the last column on the

table.

References

• Remember to cite all sources

• References should be placed on a separate page

• In-text citations should be used:

• For example, you might indicate that “According to the Centers for Medicare and

Medicaid Services (2019)….

Questions

• Please let me know if there are any questions….

Questions

• Please do not hesitate to contact me with any questions…

• Most of all – HAVE FUN! Enjoy the learning opportunity!

• Motivation for the week:

• Our greatest weakness lies in giving up, the most certain way to succeed is to try

one more time – Author Unknown

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