Reference no: EM132801499

Question - Wolfson Corporation has decided to purchase a new machine that costs $2.8 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. A bank has offered the firm a four-year loan for $2.8 million. The repayment schedule is four yearly principal repayments of $700,000 and an interest charge of 9 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 $830,000 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?