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Cash Flow calculations for Ace: finance or lease acquisition of equipment

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Ace is thinking of financing service equipment for five years with a $6,000,000 bank loan. The interest rate of the loan is 10% and is amortized over five years with end of year payments. Ace can lease the equipment for an end of year payment of $1,790,000. What is the difference in the actual out of pocket cash flows between the two payments, that is, by how much (in thousands of dollars) does one payment exceed the other?

Please explain and provide a detailed solution.

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Solution Summary

The solution shows the two calculations: lease or purchase and concludes which is better and how much of a savings.

Solution Preview

We need to compute the annual payment of the loan,
PV = 6000,000
interest rate = ...

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