Problem $21-9$ Lease or Buy

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 $$2\mathrm{.}8$ million in annual pretax cost savings. The system costs $$9\mathrm{.}5$ million and will be depreciated straight$-$line to zero over its five$-$year life, after which it will be worthless. Wildcat's tax rate is $25$ percent and the firm can borrow at $8$ percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $$2,170,000$ per year. Lambert's policy is to require its lessees to make payments at the start of the year.

a$.$ What is the NAL for Wildcat? $($Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

b$.$ What is the maximum lease payment that would be 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$.,1,234,567\mathrm{.}89.)$

a$.$ NAL

b$.$ Lease payment