United Hospital has received a leasing proposal from Leasing, Inc., for a Siemens cardiac catheterization unit. The terms are:
â?¢ Five-year lease
â?¢ Annual payments of $200,000 payable one year in advance
â?¢ Payment of property tax estimated to be $23,000 annually
â?¢ Renewal at end of year 5 at fair market value
Alternatively, United Hospital can buy the catheterization unit for $725,000. This purchase would require United Hospital to debt-finance this equipment. It anticipates a bank loan with an initial down payment of $125,000 and a three-year term loan at 16 percent with equal principal payments. The residual value of the equipment at year 5 is estimated to be $225,000. The lease is treated as an operating lease. Depreciation is calculated on a straight-line basis. Assuming a discount rate of 14 percent, what financing option should United Hospital select? Assume that there is no reimbursement of capital costs.© BrainMass Inc. brainmass.com October 17, 2018, 12:59 am ad1c9bdddf
What financing option should United Hospital select?
Purchase of house: evaluate two financing options
You are contemplating the purchase of a house. You are offered two financing choices:
A. Borrow $500,000 on a 30-year term at 9% p.a. with equal monthly payments in arrears, or
B. Borrow the same amount interest-only for 10-years at 8.5% with an up-front fee of $10,000, the full amount of the principal to be repaid at the end of the term.
Either loan can be prepaid without penalty. You only expect to stay in the house for 5 years. If your personal discount rate is 10%, which is the better deal? Ignore taxes.View Full Posting Details