Senior Living Ltd. (SLL) is a not-for-profit organization that operates the publicly owned nursing homes in a large Canadian city. SLL obtains operating funds from grants from the government, donations, and payments by residents of the homes (if they are able to pay). Recently, management decided to buy several ambulances for emergencies and to take residents to doctor’s appointments.

As a not-for-profit organization, SLL doesn’t pay income taxes or claim capital cost allowance on its capital assets. The ambulances would have useful lives of about four years. They would cost \($200,000\) if purchased and could be sold for about \($25,000\) after four years. To complete the purchase, SLL would have to borrow about \($100,000\) from the bank for three years at 7 percent. Management is also considering the possibility of leasing the ambulances. The proposed lease would be for four years with monthly payments of \($5,500\). At the end of the lease the ambulances would remain the property of the lessor.

Required:

Prepare a report to management that explains fully whether SLL should buy or lease the ambulances.