Carpinelli Foods Limited Is Considering a Leasing Arrangement to Acquire

Multiple Choice

Carpinelli Foods Limited is considering a leasing arrangement to acquire new processingequipment. Carpinelli's before-tax short-term borrowing rate is 5%, its before-tax long-termborrowing rate is 8%, its tax rate is 30% and the lessor's implied discount rate is 6%. What is the rateCarpinelli should use in its analysis of the lease-or-purchase issue?

A) 5%
B) 6%
C) 5.6%
D) 8%