Question

Discuss the issue of capital investment in the health care industry. When is it appropriate to consider purchasing versus leasing as an acquisition option? Is it always better to pursue one option versus the other? Why or why not?

Answer 1

Capital Investment is generally a large amount of investment and requires careful consideration in all industries. In the healthcare industry especially Capital Investment requires a huge amount of funds as well as resources. More over due to the changing technology the Capital Investment has to be undertaken carefully since the Capital Investment may become obsolete very quickly.

Due to the large amount involved as well as expected changes which may crop up very quickly the issue of purchase vs. leasing has to be considered. Moreover there are taxation issues which require consideration of both the options. Neither option is always better and both the options have to be assessed carefully in order to ascertain the better one. This is done by way of capital budgeting techniques such as net present value analysis. In this methodology the present value of cash inflows and outflows is compared and the option which has greater inflows than outflows is pursued. It is possible that buying the asset has higher net present value than the leasing option and vice versa. Hence both options have to be carefully assessed.