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Year 1 Balance $900,000 $752,580 $590,418 $412,040 $215,824 Payment $237,420 $237,420 $237,420 $237,420 $237,420 Interest $90,000 $75,258 $59,042 $41,204 $21,582 Principal Reduction $147,420 $162,162 $178,378 $196,216 $215,824 3 4 5 3. Lease the Equipment: The equipment could be leased from HospLeasing, with an initial payment of $50,000 due on equipment delivery and five annual payments of $220,000 each, commencing on December 31, 2009. At the option of the lessee, the equipment can be purchased at the fair value at lease termination (the lessor is currently estimating a 30 percent salvage value). The lease satisfies the requirements to be an operating lease for both FASB (Financial Accounting Standards Board) and income tax purposes. This means that all lease payments are deductible for tax purposes each year. Because of expected technological changes in medical equipment, Country Health would not plan to purchase the X-ray equipment at the end of the lease commitment. Country Heath has an effective income tax rate of 40%, and an after-tax corporate hurdle rate of 18%. Income taxes are paid at the end of the year. Prepare a discounted cash value analysis of the three alternatives. Please note the following: (a) depreciation is tax deductible, (b) interest, only, on loan payments is tax deductible, (c) lease payments, under an operating lease, are completely tax deductible. Year 1 Balance $900,000 $752,580 $590,418 $412,040 $215,824 Payment $237,420 $237,420 $237,420 $237,420 $237,420 Interest $90,000 $75,258 $59,042 $41,204 $21,582 Principal Reduction $147,420 $162,162 $178,378 $196,216 $215,824 3 4 5 3. Lease the Equipment: The equipment could be leased from HospLeasing, with an initial payment of $50,000 due on equipment delivery and five annual payments of $220,000 each, commencing on December 31, 2009. At the option of the lessee, the equipment can be purchased at the fair value at lease termination (the lessor is currently estimating a 30 percent salvage value). The lease satisfies the requirements to be an operating lease for both FASB (Financial Accounting Standards Board) and income tax purposes. This means that all lease payments are deductible for tax purposes each year. Because of expected technological changes in medical equipment, Country Health would not plan to purchase the X-ray equipment at the end of the lease commitment. Country Heath has an effective income tax rate of 40%, and an after-tax corporate hurdle rate of 18%. Income taxes are paid at the end of the year. Prepare a discounted cash value analysis of the three alternatives. Please note the following: (a) depreciation is tax deductible, (b) interest, only, on loan payments is tax deductible, (c) lease payments, under an operating lease, are completely tax deductible

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