follow up question leasing financing

this was submitted as a discussion:

In the article, “Objectives Drive Buy or Lease Decisions,” most hospitals such as Edward-Elmhurst Healthcare prefer to purchase their equipment rather than leasing (Chuck, 2014). Such a decision is as a result of the high cost of the interest rates that comes with leasing. For instance, the system’s director of the hospital prefers buying to leasing since that option helps the health organization to save up to 12% of the amount that could have been paid for leasing. Also, leasing has a downside because if the equipment is damaged, the lessee is usually responsible for the damage.

The article, also, establishes that leasing, too, has benefits. For instance, the system’s director at Deaconess Hospital, Oklahoma City opts for leasing since it is a better way to free up capital. Many healthcare organizations choose to conserve cash for other reasons such as operating expenses (Chuck, 2014). In other cases, the hospitals may not have cash upfront for purchasing the needed equipment. Therefore, leasing becomes the best option since it enables the hospital to obtain the equipment and pay for it over time. Another benefit is that leasing has inherent flexibility. In this case, a health organization may choose to return the leased equipment and go for an upgraded option since technology in the health sector is rapidly changing. The healthcare organizations are hence required to evaluate their objectives so that they can identify whether to go for buying or leasing (Berlin & Lexa, 2006). The article is thus useful since it identifies the importance of knowing the financial capabilities, the payment plan in the case of leasing and the long-term objectives of an organization. It, also, establishes the importance of analyzing and understanding the leasing contracts when organizations are involved in a financial relationship with another firm. From the article, comprehending the leasing contract helps the organization to evaluate the total cost of the leased equipment, the options available as well as the compliance conditions.

References:

Chuck, G. (2014). Objectives drive to buy or lease decisions Healthcare Finance, Publication of HIMSS Media Retrieved from http://www.healthcarefinancenews.com/news/objectives-drive-buy-or-lease-decisions

Berlin, J. W., & Lexa, F. J. (2006). An Analysis of the Buy-Vs-Lease Decision. Journal of the American College of Radiology, 3(2), 102-107.

Follow up question from the prof:

You discussed a hospital that chosses to lease “since it is a better way to free up capital.” This makes me wonder, though: if they always choose to lease, what do they do with the capital ther are freeing up?

Please discuss using APA and a peer-reviewed source. Thank you

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