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HealthPlan Northwest must install a new $1 million computer to track patient records in its...

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Finance

HealthPlan Northwest must install a new $1 million computer to track patient records in its three service areas. It plans to use the computer for only three years, at which time a brand new system will be acquired that will handle both billing and patient records. The company can obtain a 10% bank loan to buy the computer or it can lease the computer for three years. Assume that the following facts apply to the decision: The computer falls into the three-year class for tax depreciation, so the MACRS allowances are 0.33, 0.45, 0.15, and 0.07 in Years 1 through 4, respectively. The companys marginal tax rate is 34%. Tentative lease terms call for payments of $320,000 at the end of each year. The best estimate for the value of the computer after three years wear and tear is $200,000

3.What is the appropriate discount rate to use in this analysis?

4. What is the expected gain or loss on the sale of the asset at the end of year 3?

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