Assisted drilling system for oil exploration business

Assignment Help Financial Management

Reference no: EM131903220

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 $2.6 million in annual pretax cost savings. The system costs $9.7 million and will be depreciated straight-line to zero over its five-year life, after which it will be worthless. 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 $2,310,000 per year. Lambert's policy is to require its lessees to make payments at the start of the year.

What is the NAL for Wildcat? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NAL $______

What is the maximum lease payment that would be acceptable to Wildcat? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Lease payment $______

Reference no: EM131903220

Questions Cloud

The lessor and lessee to be indifferent about lease : What would the lease payment have to be for both the lessor and the lessee to be indifferent about the lease?

Explain the two irrelevance propositions advanced : Explain the two Irrelevance Propositions advanced by Modigliani and Miller (M&M) in 1958. Give an intuitive argument for why these propositions are plausible.

Five variables needed to estimate value of call option : List the five variables needed to estimate the value of a call option. Describe how a change in each of these variables affects the value of a call option.

Identify contractual saving organizations : Financial intermediation what is it and examples? identify contractual saving organizations? S=I , give examples.

Assisted drilling system for 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.

Does capital structure influence the value of a firm : What are some factors that affect capital structure decisions made by management? Does capital structure influence the value of a firm?

Review the health administration leadership competency model : The history, definition, and use of Leadership Competency Models were addressed this week in Chapter 2 of your course text. The Health Administration Leadership

Does financial account balance equal net financial deal : How do these following categorize into long-run or short-run: Direct foreign investment, Portfolio investment, Financial derivative and other investment ?

What should mr buy cheep charge per car wash : If the purchaser wants to take home $300 per day and recover his investment and costs in two years, what should he charge per car wash?

User Account

All Pages