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?