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Purchase versus lease. Hopewell Health System wants either to borrow money to pur- chase a hospital or to enter into a lease agreement with the
Purchase versus lease. Hopewell Health System wants either to borrow money to pur- chase a hospital or to enter into a lease agreement with the city of Hopewell. Th price of the hospital is $55 million. Assuming 100 percent financing, the interest rate is 8 percent for the loan, with an after-tax cost of,debt of 5 percent. The 8 percent interest 32. e purchase rate on the loan is also the implied borrowing rate for the lease. The length both of the loan and of the lease is 5 years. The before-tax lease payments are expected to be $19 million per year. The tax rate is 40 percent for Hopewell Health System.S Health lease or borrow the money to purchase the hospital
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