Case 17 questions seattle cancer center leasing decisions

CASE 17 QUESTIONS

SEATTLE CANCER CENTER

Leasing Decisions

 

1. As a baseline, assume all cash flows have the same risk; that is, ignore residual value risk and use the same discount rate for all lessee and lessor cash flows.

 

a. Should the Center lease the equipment? Should GBF write the lease?

 

b. Who is getting the better deal? Explain.

 

c. What is the maximum lease payment that the Center would be willing to pay? What is the minimum lease payment that GBF would be willing to accept?

 

d. What factor influence whether the actual lease payment will be closer to the Center’s maximum lease payment or GBF’s minimum lease payment?

 

2. This lease is attractive to both parties because there is asymmetry of inputs between the lessee and lessor.

a. What are these asymmetries?

 

b. What would be the result if there were no asymmetries? Prove it.

 

3. The Center is considering the inclusion of a cancellation clause in the lease contract, in which it could cancel the lease at any time after giving a minimum 30 day notice.

 

a. What impact would a cancellation clause have on the risk of the lease to the Center and the risk of the lease to GBF? Why? No additional calculations are required.

 

b. What might GBF do to compensate for the change in risk? No additional calculations are required.

 

4. GBF has indicated that it would be willing to write a lease at a rate of $7,000 per procedure. Compare the risk of the per procedure lease to the conventional lease from the perspectives of both the lessee and lessor. (Hint: Graph the annual profit of a per-procedure lease and the annual profit of an annual lease against the number of procedures and interpret the graph.)

 

5. What would be the NAL to the Center if tax-exempt (municipal) debt financing was available to the Center? Would the availability of tax-exempt debt financing make leasing more or less attractive to the Center than before? Why? (Assume all cash flows have the same risk; that is, use the same discount rate on all lessee cash flows.)

 

6. What is the NAL to the Center after adjusting for the riskiness inherent in the residual value? Does recognition of residual value risk make leasing more or less attractive to the Center than before? Why?

 

7. Return to baseline assumptions. GBF will probably obtain a $1,500,000 simple interest loan from its bank at a cost of either 7 or 9 percent that it would use to leverage the lease. Should the lessor take the loan if the interest rate is 7 percent? Should the lessor take the loan if the interest rate is 9 percent? Justify your answer.

 

8. If the Center decides to lease, will the lease be classified as a capital lease and shown directly on the balance sheet? Show your calculations.

 

9. a. From the perspective of the Center, what types of financial risk are present in this decision? b. Finally, considering all relevant factors, including the possibility of obtaining a cancellation clause or a per procedure lease, what should the Center do, lease or buy? Case Questions Cases in Healthcare Finance Questions – 2

 

 

10. In your opinion, what are three key learning points from this case?

Study Locus
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

Essays

Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

Admissions

Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

Reviews

Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

Reviews

Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.