Wolfson Corporation has decided to purchase a new machine that costs $3 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 21 percent. A bank has offered the firm a four-year loan for $3 million. The repayment schedule is four yearly principal repayments of $750,000 and an interest charge of 10 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. A leasing corporation offers to lease the same machine to Wolfson. Lease payment s of $850,000 per year are due at the beginning of each of the four years of the lease. What would be the net advantage of leasing the machine?

Wolfson Corporation has decided to purchase a new machine that costs $3 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 21 percent. A bank has offered the firm a four-year loan for $3 million. The repayment schedule is four yearly principal repayments of $750,000 and an interest charge of 10 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. A leasing corporation offers to lease the same machine to Wolfson. Lease payment s of $850,000 per year are due at the beginning of each of the four years of the lease. What would be the net advantage of leasing the machine?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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