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

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Definitions:

Night Shift

A work shift that takes place during the nighttime hours, typically involving work hours that occur when most people are asleep.

Tropical Animals

Species adapted to survive in the tropical climate zones, which are characterized by high temperatures and significant rainfall.

Predators

Organisms that hunt and kill other organisms for food.

Rodents

Mammals of the order Rodentia, characterized by a single pair of continuously growing incisors in each of the upper and lower jaws.