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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
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 $1.6 million in annual pretax cost savings. The system costs $6.1 million and will be depreclated straight-line to zero over four years. Wildcat's tax rate is 38 percent, and the firm can borrow at 7 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1,750,000 million per year. Lambert's policy is to require its lessees to make payments at the start of the year. Many lessors require a security deposit in the form of a cash payment or other pledged collateral. Suppose Lambert requires Wildcat to pay a $180,000 security deposit at the Inception of the lease. What is the NAL with the security deposit
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