What is the nal for wildcat

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Reference no: EM13263738

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 $1.75 million in annual pretax cost savings. The system costs $8 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 $1.9 million per year. Lambert's policy is to require its lessees to make payments at the start of the year.

Lease or Buy [LO3] What is the NAL for Wildcat? What is the maximum lease payment that would be acceptable to the company?

Reference no: EM13263738

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