A manufacturing company must install a $2.5 million IT system to run its operations. It can obtain a loan for 100% of the purchase price, or it can lease the IT equipment. Assume the following facts apply: 1 The IT equipment will be depreciated on a straight-line basis over 5 years 2 The loan is a 5-year simple interest loan, with interest paid at the end of the year 3 The interest rate on the loan would be 10% 4 If the company leasaed the equipment, the lease payments would be $750,000, payable at the beginning of each of the next 5 years 5 If the company purchases the equipment, annual upgrade costs will run $50,000 per year 6 Under the lease arrangment, the lessor, not the lessee will pay the upgrade costs 7 The company has no use for the equipment after 5 years and expects that it can sell the used equipment for $50,000 at the end of year 5 9 Insurance and other related costs would be the same whether the company buys or leases the IT equipment. 8 The company's tax rate is 25% Using the above data, determine the net advantage to leasing and state whether the company should lease or purchase the IT equipment