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Exon Oil Company is trying to decide whether to lease or buy a new computer -assisted drilling system for its oil exploration business. The system
Exon Oil Company is trying to decide whether to lease or buy a new computer -assisted drilling system for its oil exploration business. The system costs $9M and qualifies for a 245 percent CCA rate. The equipment will have a S1M salvage value in five years. Exon's tax rate is 35 percent and the firm can borrow at 9 percent. CowTown Leasing Company has offered to lease the drilling equipment to Exon for payments of 2M per year. CowTown's policy is to require its lesses to may payments at the start of the year. a. What is the NAL for Exon? Should the equipment be leased or purchased? (6 marks) What would the lease payment have to be for both lessor and lessee to be indifferent to the lease
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