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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 $1.4 million in annual pretax cost savings. The system costs $6.4 million and will be depreciated straight-line to zero over five years. Wildcat's tax rate is 35 percent, and the firm can borrow at 9 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1,560,000 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 $290,000 security deposit at the inception of the lease. What is the NAL with the security deposit? Multiple Choice $144,556.92 $-111,656.20 $-101,022.27 $-324,583.93 $-106,339.24
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