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 $3.9 million in annual pretax cost savings. The system costs $8.9 million and will be depreciated straight-line to zero over five years. Wildcats tax rate is 24 percent and the firm can borrow at 6 percent. Lamberts 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 $880,000 at the end of the lease. What is the maximum lease payment acceptable to Wildcat?