Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards

| November 9, 2018

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 theequipment for 5 end-of-year payments of $1,790,000 each. How much larger or smaller is thebank loan payment than the lease payment? Note: Subtract the loan payment from the leasepayment.

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