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

It would be safe and beneficial to purchase the equipment and acquire the technology in cash instead of financing the same because you have observed a fixed number of tests of 180 cases per year, so the revenue per year is almost fixed and confirmed and also you can have the depreciation expense. We would not have to pay interest, the financing cost, on cash purchase.

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