A HCA hospital in Colorado plans to obtain a new MRI that costs $1.5 million and has
an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI,
or it can obtain a guideline lease for the equipment. Assume that the following facts apply to the decision:
- The MRI falls into the three-year class for tax depreciation, so the MACRS allowances are 0.33, 0.45,
0.15, and 0.07 in Years 1 through 4, respectively.
- Estimated maintenance expenses are $75,000 payable at the beginning of each year whether the MRI is
leased or purchased.
- HCA's marginal tax rate is 40 percent.
- The bank loan would have an interest rate of 15 percent.
- If leased, the lease payments would be $400,000 payable at the end of each of the next four years.
- The estimated residual (and salvage) value is $250,000.
a. What are the NAL and IRR of the lease? Interpret each value.