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Lease Financing

Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $6,000,000 bank loan to finance service equipment. The loan has an interest rate of 10% and would be amortized over 5 years, with 5 end-of-year payments. Sutton can also lease the equipment for 5 end-of-year payments of $1,790,000 each. How much larger or smaller is the bank loan payment than the lease payment? Note: Subtract the loan payment from the lease payment.

A. $177,169
B. $196,854
C. $207,215
D. $217,576
E. $228,455

Solution Preview

Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $6,000,000 bank loan to finance service equipment.  The loan has an interest rate of 10% and would be amortized over 5 years, with 5 end-of-year ...

Solution Summary

Compares bank loan payment with the lease payment.

$2.19