Sorry to contradict after your kind vote of confidence. Both scenarios result in $400 of taxable income. You don't get a tax deduction for repaying principal on a loan. Unless the loan is interest-free, the debt scenario results both in lower net income and less cash.
I'm sorry but you are absolutely right. That was an oversight on my part: the interest portion of your loan repayment is deducted as an expense. A loan amortization table will let you know exactly how much that would be.
Moderator's note: This post was edited by frodocooper to remove a nested quote.
