Walton Nursing Home (WNH)

 

Walton Nursing Home (WNH) is evaluating a guideline lease agreement on laundry equipment that costs $250,000 and falls into the MACRS three-year class.The home can borrow at an 8 percent rate on a four-year loan if WHN decided to borrow and buy rather than lease. The laundry equipment has a four-year economic life, and its estimated residual value is $50,000 at the end of Year 4.If WHN buys the equipment, it would purchase a maintenance contract which costs $5,000 per year, payable at the beginning of each year.The lease terms, which include maintenance, call for a $71,000 lease payment at the beginning of each year. WNH’s tax rate is 40 percent. Should the home lease or buy?