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Lease Analysis: Per Procedure vs. Conventional

The document compares the risks and profits of a per procedure medical equipment lease versus a conventional annual lease. A per procedure lease would cost $25,000 more initially but could be more profitable if procedure volume is high enough. For example, if only 70 procedures are performed, the per procedure lease would earn a net profit of $210,000 while a conventional annual lease would only earn $25,000. Therefore, the per procedure lease is more profitable but also riskier if minimum procedure volumes are not met.

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ShafiqUr Rehman
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6 views2 pages

Lease Analysis: Per Procedure vs. Conventional

The document compares the risks and profits of a per procedure medical equipment lease versus a conventional annual lease. A per procedure lease would cost $25,000 more initially but could be more profitable if procedure volume is high enough. For example, if only 70 procedures are performed, the per procedure lease would earn a net profit of $210,000 while a conventional annual lease would only earn $25,000. Therefore, the per procedure lease is more profitable but also riskier if minimum procedure volumes are not met.

Uploaded by

ShafiqUr Rehman
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Question 4

Risk for per procedure lease and Conventional lease

From calculation we can analyze that per procedure lease will cost 25000 more as compare to

conventional annual lease. However, if lessee would be buying volume downside protection the

profit will be more than conventional lease

For example

If procedure or only 70 the cost of lease will be only

$70 X $7000 = $49,0000

While annual profit will be 700,000

The net profit will be $700,000-$490,000 =$210000

While on the other hand in case of conventional annual lease

Profit will be

$700,000-$675,000 = $25000

The net profit will be only 25,000 in this case the per procedure lease is more profitable and

riskier as compare to conventional leasing.

Question 5

From calculation the NAL for center is -$66,408. Ownership will be more attractive than

leasing if the availability of low-cost, tax-exempt debt increases and interest rate remain same

(5%) for all cash fellow activities at residual value of $1,125,000.


Question 6

The NAL varies between $253,186 and $116,261. For the adjustment of discount rate we will

add two interest rates 5% and 8% and we will get 13% discount rate which will applied to

$1125,000 expected residual value. It will make leasing more attractive for center than before

because the residual values is borne by the lessor and the recognition of increased residual value

will become more beneficial than before

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