HLTH 5033 Module 4 Capital Expenditure Evaluation Example

Buy, Lease or Hire the Van: A Present-Value Evaluation of a Mobile Health Unit for a County Health Department's Rural Outreach

Student Name

American College of Education

HLTH5033: Financial Management in Public Health

Module 4 Assignment

Instructor Name

October 26, 2026

The Decision

The composite county health department wants to take immunization and WIC nutrition services to rural townships and farmworker housing sites where families struggle to reach its main clinic. Staff propose operating a mobile health unit, a customized vehicle with two exam rooms and a small waiting area, about 120 days a year, serving an estimated 28 visits a day. Mobile clinics have a reasonable evidence base: Yu et al. (2017), reviewing 51 articles on mobile health clinics in the United States, concluded that they succeed in reaching vulnerable populations by delivering care where people live, and that the evidence suggests they can be cost-effective in underserved groups.

The question for this module is financial: should the department buy a unit, lease one, or contract with a vendor that provides a staffed vehicle by the day? The department's own nurses and nutritionists would deliver the services in every option, so the comparison concerns only the vehicle and its operation.

Method

Because the unit produces services rather than revenue, the right comparison is the present value of each option's costs over the same period, choosing the option that delivers the required service at the lowest present cost. Present value converts future costs into today's dollars by discounting them at a rate reflecting the time value of money (Penner, 2017). The county's finance office uses a 4% discount rate for capital decisions. The analysis runs eight years, the expected service life of a purchased unit.

Only costs that differ between options are counted. Nurse and nutritionist time is the same in each option and is excluded. A half-time driver and logistics coordinator, about $30,000 a year including benefits, is needed if the county owns or leases the unit but is included in the vendor's daily rate.

The Three Options

Buying the unit costs $325,000 now. Annual operating costs for an owned unit, maintenance, fuel and insurance, are about $27,500 in the first year, rising about 4% a year as the vehicle ages, plus the $30,000 driver and coordinator. The unit's estimated resale value after eight years is $40,000. The present value of buying, after subtracting the discounted resale value, is about $709,300.

Leasing costs $6,200 a month, or $74,400 a year, with maintenance included; the county pays fuel and insurance of about $13,500 and the $30,000 driver and coordinator, for about $117,900 a year. Over eight years, the present value is about $793,800.

Contracting with a vendor costs $1,450 per service day for a staffed, maintained and insured vehicle, or $174,000 a year at 120 days. The present value over eight years is about $1,171,500.

Comparing the Options

Buying has the lowest present cost, about $84,500 less than leasing and about $462,200 less than contracting. Expressed as an equivalent annual cost, a level yearly amount with the same present value, buying costs about $105,400 a year, leasing $117,900 and contracting $174,000. At 120 days and 28 visits a day, that is about $26 per visit for the vehicle if bought, $30 if leased and $44 if contracted.

The ranking depends heavily on how much the unit is used. Buying and leasing carry mostly fixed costs, while contracting is paid by the day. Each additional service day per year under the contract adds about $9,800 to the eight-year present value, so contracting becomes the cheaper option only if the unit would be used fewer than about 73 days a year. At the planned level of use, owning is cheapest; if the program cannot keep the unit busy, owning becomes the most expensive mistake.

Sensitivity and Risk

Three assumptions deserve testing. First, use: the department has not run a mobile program before, and the 120-day estimate rests on staff enthusiasm rather than experience. If staffing shortages limited the unit to 80 days, the contract's present value would fall to about $781,000, still above the purchase at roughly $700,000 once lower fuel costs are counted, but the margin would narrow sharply. Second, maintenance: specialized vehicles can be expensive to repair, and a major breakdown in an owned unit could cost tens of thousands of dollars and weeks of lost service, a risk that leasing and contracting transfer to others. Third, the discount rate: at a higher rate, future lease and contract payments look cheaper relative to the upfront purchase, but even at 7% the purchase remains the least costly option at the planned level of use.

Nonfinancial Factors

Money is not the only consideration. A purchased or leased unit can be designed and scheduled to fit the department's needs, including evening visits at farmworker housing and privacy for WIC counseling, while a vendor's vehicle may be shared with other clients and less available at short notice. Ownership also brings responsibilities: a place to park and charge the vehicle, a driver with the right license, and staff time to manage maintenance. Evidence on the value of public health investment suggests that spending which extends services to underserved communities can yield measurable health gains; Mays and Smith (2011) found that increases in local public health spending were associated with declines in deaths from preventable causes, with larger effects in low-resource communities. The mobile unit is the kind of investment that reaches those communities.

Paying for the Choice

The recommended lease also fits the department's financing situation. The department's own statements, reviewed earlier in the course, show unassigned fund balance had fallen to about three weeks of expenditures, so an upfront purchase of $325,000 would either consume most of the remaining cushion or require borrowing through the county's capital program, which would take a year to schedule. A lease, by contrast, is an operating expense of about $117,900 a year that can be funded from the program's regular budget. The department will seek part of that cost from the state immunization program's outreach funds, where the grant permits vehicle leasing for services to underserved areas, and cover the remainder from the levy. If the program later exercises the purchase option, it should plan the purchase through the county's capital budget so that it does not draw down operating reserves. Matching the financing to the decision's risk keeps a sensible service choice from creating a cash problem.

Recommendation

The department should not buy a unit yet. Although purchase is the cheapest option at 120 days a year, the department has no experience operating a mobile program, and the break-even analysis shows that the financial case depends on high use. It should instead lease a unit for two years, with an option to buy at a stated price, and track days in service, visits per day and repair costs. If the program reaches at least 100 service days a year by the end of the lease, the department should exercise the purchase option or buy a new unit; if not, it should shift to a vendor contract at the lower level of use. This approach costs somewhat more in the first two years but protects the county from the largest risk identified in the analysis.

References

Mays, G. P., & Smith, S. A. (2011). Evidence links increases in public health spending to declines in preventable deaths. Health Affairs, 30(8), 1585-1593. https://doi.org/10.1377/hlthaff.2011.0196

Penner, S. J. (2017). Economics and financial management for nurses and nurse leaders (3rd ed.). Springer Publishing.

Yu, S. W. Y., Hill, C., Ricks, M. L., Bennet, J., & Oriol, N. E. (2017). The scope and impact of mobile health clinics in the United States: A literature review. International Journal for Equity in Health, 16, Article 178. https://doi.org/10.1186/s12939-017-0671-2