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A company is trying to decide whether to lease or buy a new computer - assisted drilling system for its oil exploration business. Management has
A company is trying to decide whether to lease or buy a new computerassisted drilling system for its oil exploration business. Management has decided that is must use the system to stay competitive; it will provide $ million in annual pretax cost savings. The system costs $ million and will be depreciated straightline to zero over five years. The tax rate is percent and the firm can borrow at percent. Lambert's policy is to require its lessees to make payments at the start of the year. Suppose it is estimated that the equipment will have an aftertax residual value of $ at the end of the lease. What is the maximum lease payment acceptable to the company?
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