A81 |: If you increase the interest rate to 12% it will increase the cost of borrowi r 7 Lewis Health System Inc. has decided to acquire a new electronic health record system for its Richmond 8 hospital. The system receives clinical data and other patient information from nursing units and other 9 patient care areas, then either displays the information on a screen or stores it for later retrieval b 10 physicians. The system also permits patients to call up their health record on Lewis's website. 12 The equipment costs $1,000,000, and, if it were purchased, Lewis could obtain a term loan for the full 13 purchase price at a 10 percent interest rate. Although the equipment has a six-year useful life, it is 14 classified as a special-purpose computer, so it falls into the MACRS three-year class. If the system were 15 purchased, a four-year maintenance contract could be obtained at a cost of S20,000 per year, payable at 16 the beginning of each year. The equipment would be sold after four years, and the best estimate of its 17 residual value at that time is S200,000. However, since real-time display system technology is changing 18 19 As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Lewis that 20 Consolidated Leasing would be willing to write a four-year guideline lease on the equipment, including 21 maintenance, for payments of S260,000 at the beginning of each year. Lewis's marginal federal-plus-state 22 tax rate is 40 percent. You have been asked to analyze the lease-versus-purchase decision, and in the 23 24 a. What is the present value cost of owning the equipment? 25 b. What is the present value cost of leasing the equipment? 26 c. What is the net advantage to leasing (NAL)? 27 d. Answer these questions one at a time to see the effect of the change on NAL. That is, starting with 28 the original numbers you used for questions a. and b., what is the NAL if: 29interest rate increases to 12 percent 30the tax rate falls to 34 percent 31 maintenance cost increases to $25,000 per year 32 residual value falls to $150,000 33the system price increases to $1,050,0003 34 e. Do the changes in d. make leasing more or less attractive? Explain GP1MC1 GP1MC2 GP1MC3