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Scenario E: McGee Brothers Ltd McGee Brothers Ltd is looking at installing a new item of plant. The following alternative financing arrangements are available: Purchasing

Scenario E: McGee Brothers Ltd McGee Brothers Ltd is looking at installing a new item of plant. The following alternative financing arrangements are available: Purchasing finance by borrowing Amount borrowed $60,000 Term of loan 5 years Interest rate 12.5% payable annually in arrears Lease plan Amount of finance $60,000 Term 5 years True interest rate 10% Other information The tax rate is 28%. Assume that tax benefits arising from deductible expenditures are received in the year to the expenditure. McGee Brothers uses the after-tax borrowing rate as a discount rate. You can ignore depreciation

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