Case 18: Leasing Decisions | |
Background:

The Portland Cancer Center is a not-for-profit inpatient and outpatient facility dedicated to the prevention and treatment of cancer. Working to perfect noninvasive brain surgery techniques for the past ten years, the Center is considering options to replace its current model of the Gamma Knife. Radiosurgery is often referred to as the Gamma Knife. The Gamma Knife delivers 201 separate radiation sources to treat certain brain cancers without invasive surgery. For patients with deep lesions the Gamma Knife significantly reduces the risk associate with traditional surgical procedures. Other clinical benefits to the Gamma Knife include: treating Parkinson’s, trigeminal neuralgia, …show more content…
| | | | | | | | | | | | | Cost of Owning | | | | | | | | | | | | | | | | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Net purchase price | | $3,000,000 | | | | | Maintenance cost | | 100,000 | $100,000 | $100,000 | $100,000 | | Maintenence tax savings | | 0 | 0 | 0 | 0 | | Depreciation tax savings | | | 0 | 0 | 0 | $0 | Residual value | | | | | | 1,125,000 | Residual value tax | | | | | | 0 | Net cash flow | | $3,100,000 | $100,000 | $100,000 | $100,000 | $1,125,000 | | | | | | | | PV cost of owning: | | $2,223,685 | | | | | | | | | | | | Cost of Leasing | | | | | | | | | | | | | | Lease payment | | $675,000 | $675,000 | $675,000 | $675,000 | | Tax savings | | 0 | 0 | 0 | 0 | | Net cash flow | | $675,000 | $675,000 | $675,000 | $675,000 | $0 | | | | | | | | PV cost leasing: | | $2,354,239 | | | | | | | | | | | | Cost Comparison | | | | | | | Net advantage to leasing (NAL)= | $130,554 | | | | | | | | | | | | | Lessee's Percentage Cost Analysis | | | | | | | | | | | | | Leasing-versus-owning CF | | $2,425,000 | $575,000 | $575,000 | $575,000 | $1,125,000 | | | | | | | | Lessee's IRR= | 6% | | | | | |

Exhibit 2: Per-procedure Lease

| | | | | | | | | | | |