Essentials Of Cost Accounting For Health Care Organizations 3rd Edition by Steven Finkler, David Ward,Judith Baker

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Your hospital is trying to decide between purchasing or leasing a cardiac catheterization unit. The two financing options are laid out as follows:
Lease
5 Years
Annual payments of $150,000 payable one year in advance
Renewal at end of year 5 at fair market value
Purchase
Purchase price is $700,000
Hospital will debt finance this equipment down payment of $70,000 and a 3-year term loan at 14% with equal principal payments
Residual or salvage value at year 5 is $225,000
Assuming a discount rate of 10%, what financing option should the hospital select? (Assume no reimbursement of capital-related costs.)