• The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted drilling system for its oil exploration businessManagement has decided that it must use the system to stay competitive; it will provide $2.8 million in annual pretax cost savings. The system costs $8.78 million and will be depreciated straight-line to zero over five years. Wildcats tax rate is 21 percent and the firm can borrow at 7 percentLambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1.95 million per year. Lamberts policy is to require its lessees to make payments at the start of the year. a. What is the net advantage to leasing (NAL) for Wildcat? What is the maximum lease payment that would be acceptable to the company? b. Suppose it is estimated that the equipment will have an aftertax residual value of $900,000 at the end of the lease. What is the maximum lease payment acceptable to Wildcat now? c. Many lessors require a security deposit in the form of a cash payment or other pledged collateral. Suppose Lambert requires Wildcat to pay a $600,000 security deposit at the inception of the lease. If the lease payment is still $1.95 million, is it advantageous for