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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.

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 $3.5 million in annual pretax cost
savings. The system costs $8.6 million and will be depreclated stralght-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 7 percent. Lambert Leasing Company has offered to lease the drilling
equipment to Wildcat for payments of $1,860,000 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 $880,000 security deposit at the Inception of the lease.
Calculate the NAL with the security deposit. (Do not round Intermedlate calculations
and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places,
e.g.,1,234,567.89.)
NAL
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