If the present value of the term loan used to purchase the


Specialist Centre is considering the purchase of a CT Scan Machine costing $514,000 that has useful lives of 7 years. This equipment will qualify for MACRS depreciation of 14.29%, 24.49%, 17.49%, and 12.49% from year one to year 4 respectively and 8.93% for year 5 to year 7. They plan to use term loan with borrowing cost of 10% for the purchase of the equipment. However, since Asma Specialist has been experiencing lower profitability in recent years, thus will get very little tax benefit from the depreciation expense, they are now considering leasing the CT scan machine instead. The expected rate of return for the lessor on the lease payment is 9% over the seven years. If bought, the machine has a final salvage value of $66,000 after seven years and Asma’s is in 40% marginal tax bracket. If the present value of the term loan used to purchase the machine is $294,260; should Asma Specialist purchase or lease the equipment? Justify your answer.

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Financial Management: If the present value of the term loan used to purchase the
Reference No:- TGS02738442

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