NZ Ltd has decided to install a new item of plant, which will cost $500,000. The following alternative financing arrangements are available:

Purchasing finance by borrowing
Amount borrowed	$500,000
Term of loan	5 years
Interest rate	9.7% payable annually
Lease plan
Amount of finance	$500,000
Term	5 years
True interest rate	9.1%
Annual instalments	$128,880

Additional information

The tax rate is 28%. Assume that tax benefits arising from deductible expenditures are received in the year of the expenditure. NZ Ltd uses the after-tax borrowing rate as a discount rate.

Which financing option should NZ Ltd choose?

Show your calculations of the cost of each financing option. Use whole numbers when rounding.