The S Company is considering the acquisition of a new processor used in its operation. The processor has an installed cost of $53,000 and is expected to have a useful life of 5 years. If purchased, the firm would borrow the entire $53,000 at an interest rate of 8%. The processor would be depreciated over a 5-year ACRS life to a zero book value, but it is estimated that it could be sold for $8,000 after 5 years. A capital budgeting analysis indicates that the purchase of the processor has a positive NPV. Alternatively, S Company can lease the processor for a 5 year period for an annual lease payment of $11,500. If the processor is leased, annual operating expenses of $2,900 will be paid by the lessor. If the equipment is purchased, the firm will incur this expense. S Company's cost of capital is 12% and its marginal tax rate is 35%. What is the interest paid in year 2? What is the annual loan payment?

Answer rating: 100% (QA)

If S Company borrows to purchase the processor what is the annual loan payment 10412 If S Compan... View the full answer