Refer to Chapter 18, Lease Financing and Business Valuation, for background in: Gapenski, L. C. (2012). Healthcare finance: An introduction to accounting and financial management (5th ed.). Chicago, IL: Health Administration Press. AHS must install a new $1.5 million computer to track patient records in its multiple service areas. It plans to use the computer for only 3 years, at that time a new system will be acquired that will handle both billing and patient records. The company can borrow money at a before-tax cost of 10%. In lieu of buying, AHS could lease the computer for 3 years. Assume that the following facts apply: The computer falls into the 3-year class for tax depreciation, so the modified accelerated cost recovery system (MACRS) allowances are 0.33, 0.45, 0.15, and 0.07 in Year 1 through Year 4, respectively. The company's marginal tax rate is 34%. Tentative lease terms call for payments of $500,000 at the beginning of each year. The best estimate for the value of the computer after 4 years of wear and tear is $300,000.

1. What is the net advantage to leasing (NAL)?

A. -567,032

B. 567,032

C. 345,060

2. What is the internal rate of return (IRR) of the lease?

A. 5%

B.7%

C.19%

D. 29%