What is the maximum lease payment-pretax cost savings

Assignment Help Financial Management

Reference no: EM13947340

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 $8.1 million and will be depreciated straight-line to zero over 5 years. Wildcat's tax rate is 34 percent, and the firm can borrow at 8 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1.92 million 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? (Negative amount should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NAL-?

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

Lease payment- ?

Reference no: EM13947340

Questions Cloud

Find depth that center is depressed with respect to shore : Approximate Lake Superior by a circle of radius 162 km at a latitude of 47 degrees. Assume the water is at rest with respect to Earth and find the depth that the center is depressed with respect to the shore due to the centrifugal force.

Do you agree with socrates conclusion : In Apology, Socrates refers to himself as a gadfly. Explain how this metaphor is considered to be characteristic of the discipline of philosophy and its relationship with other academic and intellectual pursuits. Explain Socrates' argument for his..

What do you think the ex-dividend price will be : Ginger, Inc., has declared a $6.80 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Ginger stock sells for $94.70 per ..

Problem regarding the fuel cell dissipates : Determine the minimum velocity needed to sustain the fuel cell at Tc = 77°C, and the associated location of the wire. The air and large sur- roundings are at Too = Tsur = 27°C and the fuel cell dissipates Eg = 11 W. The fuel cell emissivity is s = 0...

What is the maximum lease payment-pretax cost savings : 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 annu..

Define and explain the doctrine of ultra vires : Define and explain the doctrine of ultra vires and discuss the doctrine as it originally operated under common law. See;Ashbury Carriage & Iron Co. v Riche (1875) - other cases may also be cited.

Local convection coefficient : Compute the local convection coefficient at the leading and trailing edges of the heated plate with and without an unheated starting length of t = 1 m.

Describe what the following lmc program does. : The contents in memory occasionally have to be moved to another area of memory. When that happens, the mailbox references must be adjusted so that the program continues to function properly.

What is pretax cost of debt and aftertax cost of debt : Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 10 percent annually. Wha..

User Account

All Pages