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 $9.4 million and
will be depreciated straight-line to zero over five years. Wildcat's tax rate is 34 percent, and the firm can
borrow at 9 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for
payments of $2.15 million per year. Lambert's policy is to require its lessees to make payments at the start
of the year. The NAL for Wildcat is? The maximum lease payment that would be acceptable to the company is?
Please clarify the NAL and maximum lease payment.
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 $9.4 million and
will be depreciated straight-line to zero over five years. Wildcat's tax rate is 34 percent, and the firm can
borrow at 9 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for
payments of $2.15 million per year. Lambert's policy is to require its lessees to make payments at the start
of the year. The NAL for Wildcat is? The maximum lease payment that would be acceptable to the company is?
Please clarify the NAL and maximum lease payment.
