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Case 1: Leasing. Riverton Mining plans to purchase or lease $220,000 worth of excavation equipment. If purchased, the eq
Posted: Sun Jul 03, 2022 12:52 pm
by answerhappygod
- Case 1 Leasing Riverton Mining Plans To Purchase Or Lease 220 000 Worth Of Excavation Equipment If Purchased The Eq 1 (122.72 KiB) Viewed 14 times
Case 1: Leasing. Riverton Mining plans to purchase or lease $220,000 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 $55,000 per year for five years. Assume Riverton's borrowing cost is 8%, its tax rate is 35%, 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?