Problem $21-10$ Leasing and Salvage Value

The Wildcat Oil Company is trying to decide whether to lease or buy a new computerassisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $$5$ million in annual pretax cost savings. The system costs $$10\mathrm{.}1$ million and will be depreciated straight$-$line to zero over five years. Wildcat's tax rate is $25$ percent and the firm can borrow at $9$ 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 $$1,100,000$ at the end of the lease. What is the maximum lease payment acceptable to Wildcat? $($Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

Lease payment