Capital Assets—Lease Versus Purchase Analysis Review

Capital Assets—Lease versus Purchase Analysis Review the Following Scen

Describe different leasing options.

Discuss the advantages and disadvantages of lease versus purchase. Make a decision about lease or purchase and present that option to the Assistant Administrator. Summarize the central factors that shaped your decision to recommend lease or purchase.

Write a 3–5-page report in Word format. Utilize a minimum of 2–3 scholarly sources in your research. Your paper should be clear, concise, and organized; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling, grammar, and punctuation. Apply APA standards to citation of sources.

Paper For Above instruction

The decision to acquire new medical equipment such as isokinetic exercise machines is a significant financial consideration for healthcare organizations. Facilities must weigh the options of leasing versus purchasing, considering factors like cost, flexibility, and long-term benefits. This paper explores various leasing options, compares the advantages and disadvantages of leasing and purchasing, and presents a well-informed recommendation tailored to the specific scenario of a $25,000 equipment investment with a five-year useful life.

Leasing Options

Several leasing options exist for healthcare organizations requiring medical equipment. The most common types include operational leases, financial (or capital) leases, and lease-to-own arrangements. An operational lease involves renting equipment for a specific period with the option to return or renew, generally without assuming asset ownership. These leases typically have lower monthly payments and fewer responsibilities for maintenance and residual value risks (Schwartz & Taliaferro, 2020).

Financial leases resemble a loan, where the lessee assumes most benefits and risks of ownership, including maintenance, insurance, and eventual transfer of ownership at the lease's end. It provides an option for the organization to eventually own the equipment after completing payments, often with terms spanning the useful life (Kovacic & Welch, 2021). Lease-to-own agreements combine features of leasing and purchase, allowing payment installments that lead to ownership, providing flexibility for budget management and asset control.

Advantages and Disadvantages of Lease versus Purchase

Leasing offers advantages such as reduced initial capital outlay, improved cash flow, and access to advanced technology without significant upfront expenditure. It also shifts some maintenance responsibilities to the lessor, especially in operational leases, and provides flexibility to upgrade equipment at the end of the lease term, which can be advantageous in rapidly evolving technological environments (Gupta & Kumar, 2019).

However, leasing has disadvantages, including potentially higher overall costs due to interest and fees over the lease term. Organizations may face restrictions on customization or use, and at the end of the lease, they do not own the equipment unless a buyout option is exercised, which can incur additional costs.

Purchasing provides the benefit of asset ownership, which can be advantageous for long-term use and when equipment retains residual value (Davis et al., 2022). Ownership allows complete control over the asset, including modifications and disposal, and eliminates ongoing leasing fees after the purchase. Nonetheless, it requires significant upfront capital, which could be a strain on finances, especially for budget-constrained healthcare facilities. Additionally, the organization bears the risks related to technology obsolescence and maintenance costs (Nguyen et al., 2020).

Decision and Central Factors

Considering the scenario—a $25,000 investment for equipment with a five-year useful life—the decision between leasing and purchasing hinges on financial flexibility, technological needs, and institutional strategy. Given the hospital outpatient clinic’s likely focus on flexibility and cost management, leasing emerges as a prudent choice. With leasing, the organization can preserve cash flow, access the latest technology, and avoid the depreciation risks associated with ownership.

Specifically, an operational lease might be most appropriate, enabling the clinic to utilize the equipment for five years with predictable payments and minimal maintenance responsibilities. If the organization prefers ownership for long-term use or to amortize the cost over a longer period, purchasing might be justified. However, considering the rapid evolution of exercise equipment technology and the need for flexibility, leasing offers strategic advantages aligned with the organization’s operational goals.

Conclusion

In conclusion, the analysis favors leasing, particularly operational leasing, due to its financial and operational flexibility, minimized initial expenditure, and ability to upgrade equipment periodically. The decision aligns with the healthcare facility’s need to optimize resource allocation while maintaining access to advanced rehabilitation equipment. Applying an evidence-based approach ensures that the organization makes a well-informed choice that supports its strategic and financial objectives.

References

• Davis, R., Johnson, M., & Lee, S. (2022). Equipment ownership versus leasing in healthcare: Financial implications and strategic considerations. Healthcare Finance Review, 37(2), 45-53.
• Gupta, A., & Kumar, R. (2019). Financial leasing options for healthcare organizations: Benefits and challenges. Journal of Healthcare Management, 64(4), 257-265.
• Kovacic, W., & Welch, M. (2021). Understanding lease agreements in healthcare settings. Medical Equipment Leasing Review, 15(3), 112-118.
• Nguyen, T., Patel, V., & Chen, L. (2020). Cost analysis of leasing versus purchasing medical equipment. American Journal of Medical Economics, 8(1), 34-41.
• Schwartz, A., & Taliaferro, J. (2020). Strategic financial management in healthcare: Lease versus buy decisions. Health Administration Journal, 30(1), 59-67.