Product Costing Case Study

The purpose of this assignment is to analyze the lease vs. purchase decision using the provided casestudy data. In this assignment, you will formulate a well-justified recommendation based on bothfinancial calculations and strategic considerations specific to the health organization’s contextpresented in the case study.

Case Study Scenario:

Wesley Health Systems is in need of a new magnetic resonance imaging (MRI) machine. Given thefinancial challenges facing health organizations, the financial leaders at Wesley must determine thebest option for securing the equipment. As the senior cost analyst for the organization, you arecharged with the responsibility of determining the most appropriate use of financial resources andmaking recommendations, and this often involves the acquisition of capital equipment. You areasked to evaluate the options of lease and purchase and to recommend a course of action.The purchase price of the MRI is $1,300,000 at 10% (PV), with straight-line depreciation over 5years. At the end of its useful life, the trade-in value will be equal to $130,000. There is also a$12,000 annual maintenance expense.The leasing cost for the equipment is $26,000 monthly. The leasing period equals 60 months andincludes all costs associated with maintenance.

Using the Week 5 Case Study Template, complete the following steps:

a. Calculate the principal, interest, maintenance expenses, present value expenses, andtotal expenses relative to lease and purchase options. b. Conduct a comparison of the organization’s options based on the financial calculation. c. Recommend whether the organization should lease or purchase the equipment.

Please include references. Template is attached.

1
Week 5 Template
Week 5 Case Study: Lease Versus Purchase Analysis
[Enter Name Here]
[Enter Professor Name Here]
[Enter the Date the Assignment is Due Here]
2
Case Study: Lease Versus Purchase Analysis
Provide an introduction that describes the goal of your assignment and what you are
comparing and analyzing. You can remove these instructions and type your introduction here.
Using the case information located in your assignment instructions, fill out the question
boxes in the tables below to calculate the principal payment, interest payment, maintenance
expense, total expense, present value (PV) expenses, and total expenses relative to lease and
purchase options for Wesley Health Systems. You can remove these instructions when the tables
are complete.
Table 1
Purchase
Year
Principle
Payment
Interest Maintenance
Payment
Expense
Total
Expense
PV Factor PV Expense
at 10%
1
?
?
?
?
0.909
?
2
?
?
?
?
0.826
?
3
?
?
?
?
0.751
?
4
?
?
?
?
0.683
?
5
?
?
?
?
0.621
?
Trade
Value
$130,000
?
?
?
?
0.621
?
Table 2
Lease
Year
Lease
Payment
PV Factor at
10%
PV
Expense
1
?
0.909
?
2
?
0.826
?
3
3
?
0.751
?
4
?
0.683
?
5
?
0.621
?
Comparison
In this section, compare Wesley Health Systems’ options based on the financial
calculations above (at least 200 words). You can remove these instructions and type your
response here.
Recommendations
In this section, make a recommendation of whether Wesley Health Systems should lease
or purchase their equipment (at least 200 words). You can remove these instructions and type
your response here.
4
References