CASE 1 (20 points)

You work for HCA hospitals that are contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs 4,800,000, and it would be depreciated straight-line to zero over four years. Because of short cycle of the technological equipment the scanner will be completely valueless in four years. You can lease it for 1,430,000 per year for four years at a borrowing interest rate of 8% - ignore taxes for the purpose of this exercise.

Instructions:

a. Create a lease-versus-buy analysis. Calculate the NPV of leasing. Should you lease or buy? (10 points)

b. What are the differences between an operating lease and a financial lease? (10 points)