Use the Information for the Question(s) Below

question 27

Multiple Choice

Use the information for the question(s) below.
St. Martin's Hospital plans to purchase or lease a $2 million CT scanner. If purchased, the CT scanner will be depreciated on a straight-line basis over five years, after which it will be worthless. If leased, the annual lease payments will be $500,000 per year for five years. St. Martin's borrowing cost is 8%, and its tax rate is 35%.
-Should St. Martin lease the scanner or borrow the funds and buy the scanner?

• A) Buy the scanner; the NPV of the decision = $74,890.28.
• B) Buy the scanner; the NPV of the decision = $1,749,890.28
• C) Lease the scanner; the NPV of the decision = $1,812,027.19
• D) Lease the scanner; the NPV of the decision = $692,559.51

Comprehend the impact of divisional performance measures on managerial motivation and investment decisions.

Understand the concept and methods of transfer pricing within decentralized operations.

Learn about the DuPont formula and its application in measuring business performance.

Identify the advantages and disadvantages of decentralization in business operations.

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Definitions:

SECOND(B1)

A function in spreadsheet software that returns the second component (value from 0 to 59) of a time value specified in cell B1.

Paste Numbers

The action of inserting only the numeric data from a copied selection, excluding any text or formatting.

Values

In computing, discrete data represented or stored within a variable or a constant in programming languages.

Number Formatting

The way numerical data is displayed or printed, including the use of decimal points, commas, and currency symbols.