Question
Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a five-year, $6,000,000 bank loan to finance service equipment. The
Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a five-year, $6,000,000 bank loan to finance service equipment. The loan has an interest rate of 10 percent and would be amortized over five years, with five end-of-year payments. Sutton can also lease the equipment for five end-of-year payments of $1,790,000 each. How much larger or smaller is the bank loan payment than the lease payment? What are the following figures based on the above information: Interest rate 10% Number of periods 5 Loan Amount $6,000,000 Loan Payment $ 1,582,785 Lease Payment $1,790,000 Difference $207,215 Conclusion - Lease v. Buy(Loan): buy
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