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Riverton Mining plans to purchase or lease $ 430 comma 000$430,000 worth of excavation equipment. If​...

Riverton Mining plans to purchase or lease

$ 430 comma 000$430,000

worth of excavation equipment. If​ purchased, the equipment will be depreciated on a​ straight-line basis over five​ years, after which it will be worthless. If​ leased, the annual lease payments will be

$ 97 comma 133$97,133

per year for five years. Assume​ Riverton's borrowing cost is

7.0 %7.0%​,

its tax rate is

40 %40%​,

and the lease qualifies as a true tax lease.

a. If Riverton purchases the​ equipment, what is the amount of the​ lease-equivalent loan?

b. Is Riverton better off leasing the equipment or financing the purchase using the​ lease-equivalent loan?

c. What is the effective​ after-tax lease borrowing​ rate? How does this compare to​ Riverton's actual​ after-tax borrowing​ rate?

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