You have been assigned to help the cardiac care department at your hospital decide between two competing bids for a new PACS system. Relevant information is as follows: Vendor 1: Initial price $500,000 Annual maintenance (starting in year two) $75,000, increasing by 3% annually thereafter Implementation cost $50,000 Interface costs $40,000 Vendor 2: Initial price $0 Monthly lease: $20,000 (5 year minimum lease period). Lease cost can increase by 3% per year beginning in year 3. Implementation cost $60,000 Annual maintenance included in lease Interface costs $20,000 Other costs (staffing, facility modification, etc.) are assumed to be equal. Benefits are assumed to be equal.

From a financial viewpoint, which vendors offer is more favorable? Assume a discount rate of 5%.