The chief financial officer (CFO) of AeroNex Airways, a private company, considers purchasing a new aircraft for GBP 80 million. The CFO compares two alternatives to finance the purchase: a 10-year bank loan where the incremental borrowing rate is 9.68%, or a 10-year lease with annual lease payments of GBP 12 million due at the beginning of each year. The residual value of the leased asset at the end of Year 10 is GBP 5 million and the lessor would incur direct leasing costs of GBP 2 million at lease inception. In comparison to the cost of the bank loan, the rate implicit on the lease (RIIL) is:
