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Kaiser Permanente must install a new $1.5 million computer to track patient records in its multiple...

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Finance

Kaiser Permanente must install a new $1.5 million computer totrack patient records in its multiple service areas. It plans touse the computer for only three years, at which time a brand newsystem will be acquired that will handle both billing and patientrecords. The company can obtain a 10 percent bank loan to buy thecomputer or it can lease the computer for three years. Assume thatthe following facts apply to the decision: - The computer fallsinto the three-year class for tax depreciation, so the MACRSallowances are 0.33, 0.45, 0.15, and 0.07 in Years 1 through 4,respectively. - The company's marginal tax rate is 34 percent.-Tentative lease terms call for payments of $500,000 at the end ofeach year. - The best estimate for the value of the computer afterthree years of wear and tear is $500,000. What are the NAL and IRRof the lease? Should the computer system be purchased?

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