You are considering adding genomic testing services to your clinical laboratory,

Question

You are considering adding genomic testing services to your clinical laboratory, with the hope of being able to screen patients for the gene mutations which may guide treatment for certain types of lung cancers. You have an initial estimate of $375,000 in equipment costs to implement this service and you see about 180 lung cancer cases a year.

Assuming that you could finance this purchase through cash or you have capacity to incur debt for the equipment, describe the analysis you would undertake to decide on how to finance the technology - purchase, capital lease, or operating lease. What would be your recommendation and rationale for acquiring the technology?

Explanation / Answer

The decision whether to purchase or a capital lease or a operational lease depends on the cost you decide to charge per patient screening

If the charge per patient (revenue per patient) is high then I would recommend purchasing the machine outright since you can break even faster and run the profitable business on the long run.

If the charge per patient (revenue per patient) is low and its takes very long to break even, based on the life span or useful life of the equipment, I would suggest you to either go for capital lease or a operating lease. If the useful life is long, then even if the revenue per customer is low, you can go in for a capital lease. On the other hand if the useful life is also less with a low revenue per customer, its best to go for a operating lease for a shorter time and take decision after the lease period based on the profitability.

This is the most we can say since we only know the cost of implementation and other details are not given.

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