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Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $10,000,000 bank loan to finance service equipment. The
Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $10,000,000 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 5 end-of-year payments of $2,600,000 each. How much larger or smaller is the bank loan payment than the lease payment? Note: Subtract the loan payment from the lease payment.
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