Sullivan$-$Swift Mining Company must install $$1\mathrm{.}2$ million of new machinery in its Nevada mine. It can obtain a bank loan for $100\%$ of the required amount. Alternatively, a Nevada investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that the following facts apply:

The equipment falls in the MACRS $3-$year class. The applicable MACRS rates are $33\%,45\%,15\%,$ and $7\%.$

Estimated maintenance expenses are $$80,000$ per year.

Sullivan$-$Swift's federal$-$plus$-$state tax rate is $35\%.$

If the money is borrowed, the bank loan will be at a rate of $12\%,$ amortized in $4$ equal installments to be paid at the end of each year.

The tentative lease terms call for end$-$of$-$year payments of $$350,000$ per year for $4$ years.

Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance.

The equipment has an estimated salvage value of $$350,000,$ which is the expected market value after $4$ years, at which time Sullivan$-$Swift plans to replace the equipment regardless of whether the firm leases or purchases it$.$ The best estimate for the salvage value is $$350,000,$ but it may be much higher or lower under certain circumstances.

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

To assist management in marking the proper lease$-$versus$-$buy decision, you are asked to answer the following questions.

Assuming that the lease can be arranged, should Sullivan$-$Swift lease or borrow and buy the equipment? Do not round intermediate calculations. Round your answer to the nearest dollar. Use a minus sign to enter a negative value, if there is a disadvantage.