Problem $21-10$ Leasing and Salvage Value

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer$-$

assisted drilling system for its oil exploration business. Management has decided that it

must use the system to stay competitive; it will provide $$4\mathrm{.}2$ million in annual pretax cost

savings. The system costs $$9\mathrm{.}2$ million and will be depreciated straight$-$line to zero

over five years. Wildcat's tax rate is $22$ 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

$$940,000$ 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$.,1,234,567\mathrm{.}89.)$

Answer is complete but not entirely correct.