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Health Plan Northwest must install $1 million comp...




Health Plan Northwest must install $1 million computer 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 company 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 of wear and tear is $200,000 A. What are the NAL and IRR of the lease? Interpret the value. B. Assume now that the bank loan would cost 15% percent, but all other facts remain the same. What is the new NAL? The new IRR?


Paper#8709 | Written in 18-Jul-2015

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