Riverton Mining plans to purchase or lease $190,000 worth of excavation equipment. If? purchased, the...
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Accounting
Riverton Mining plans to purchase or lease
$190,000
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
$44,007
per year for five years. Assume? Riverton's borrowing cost is
8.5%?,
its tax rate is
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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