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Difference between lease payment and bank loan payment

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Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $4,200,000 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.

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Solution Summary

I created a loan amortization schedule in excel for you and then compared the loan payment to the lease payment.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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