Step 6 - Map the net cash flows associated with leasing:
Cost of leasing:
Lease payment			$0	$0	$0	$0
Lease tax savings			$0	$0	$0	$0
Net cash flow			$0	$0	$0	$0
Step 7 - Calculate the NAL of the lease contract.:
Net advantage to leasing:
PV cost of leasing			$0
PV cost of owning			$0
NAL			$0
The PV of the cost of leasing is less than the PV of the cost of borrowing and buying.
Step 8 - Calculate the IRR of the lease and compare to the after-tax cost of debt to confirm
Leasing net cash flow			$0	$0	$0	$0	$0
Owning net cash flow			$0	$0	$0	$0	$0
Difference			$0	$0	$0	$0	$0
IRR of lease						0.00%
After-tax cost of debt						0.00%

HCA Mission Healthcare needs a piece of diagnostic equipment that costs $1 million. Mission

can either lease the equipment or borrow $1 million from a local bank and buy the equipment.

Mission's tax rate is 30 percent, and the equipment falls into the three year class. If Mission

leases the equipment, the payment would be $260 thousand per year for four years, payable at

the beginning of each year. If Mission borrows and buys, its bank would charge 6 percent

interest (compounded annually) on the loan. Should Mission buy or lease the equipment?