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Northern Iowa Clearing Service Inc. is considering a new machine purchase. It will cost $5,000,000. The company has a zero tax rate due to tax loss carry-forwards, and is considering a 4-year, bank loan to finance the equipment. Assume the machine has no salvage value at the end of the 4th year. The loan has an interest rate of 7% and would be amortized over 4 years, with four end-of-year payments. The company can lease the machine for four end-of-year payments of $1,990,000 each. Which is better deal?

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Financial Management, Finance

Category:- Financial Management
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