Purchase versus Lease. Carolina Ancillary Services for Hospitals (CASH), a taxpaying entity, is considering the purchase of a CT scanner.The cost of the scanner is $1 million.The scanner would be depreciated over ten years on a straight-line basis to a zero salvage value.At the end of five years, the scanner could be sold for its book value, $500,000.The tax rate is 40 percent.The financing options include either borrowing for the full cost of the scanner and selling it at the end of Year 5, or leasing one.The lease option is a five-year lease with equal before-tax lease payments of $320,000 per year.The borrowing alternative is a five-year loan covering the entire cost of the scanner at an interest rate of 12 percent.The after-tax cost of debt is 7 percent. Should CASH lease the scanner or borrow the full amount to purchase it?

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