1. Charles City Hospital plans on issuing a tax-exempt bond at the bond is $1,000.

• If required market rates are 6 percent, what is the value of the bond?
• If required market rates fall to 12 percent what is the value of the bond?

1. At what required market rate (3,6, or 12 percent) does the above bond sell at a discount? At a premium?
2. Mercy Medical MegaCenter ,a taxpaying entity, has made the decision to purchase a new laser surgical device. The device costs $400,000 and will be depreciated on straight-line basis over five years to a zero salvage value. Mercy Medical could borrow the full amount at a 15 percent rate for five years. The after-tax cost of debt equals 9 percent. Alternatively, it could lease the device for five years. The before-tax lease payments per year would be $80,000. The tax rate for thisMegaCenteris 40 percent. From a financial perspective, should Mercy lease the surgical device or borrow the money to purchase it and why?