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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
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 $2.7 million in annual pretax cost savings. The system costs $7.4 million and will be depreciated straight-line to zero over five years. Wildcat's tax rate is 21 percent, and the firm can borrow at 8 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1.68 million per year. Lambert's policy is to require its lessees to make payments at the start of the year. Suppose Lambert requires Wildcat to pay a $550,000 security deposit at the inception of the lease. Calculate the NAL with the security deposit. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) NAL $ 957,410.80
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