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 $1.3 million in annual pretax cost savings. The system costs $6.3 million and will be depreciated straight-line to zero over four years. Wildcat's tax rate is 31 percent, and the firm can borrow at 8 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1,700,000 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 $270,000 security deposit at the Inception of the lease. What is the NAL with the security deposit? Multiple Choice O $210,719.39 O $200,685.13 O $190,650.87 O $-17,098.20 O $427,537.55

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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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 has decided that it
must use the system to stay competitive; it will provide $1.3 million in annual pretax cost
savings. The system costs $6.3 million and will be depreciated straight-line to zero over
four years. Wildcat's tax rate is 31 percent, and the firm can borrow at 8 percent. Lambert
Leasing Company has offered to lease the drilling equipment to Wildcat for payments of
$1,700,000 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 $270,000 security deposit at the
Inception of the lease. What is the NAL with the security deposit?
Multiple Choice
$210,719.39
$200,685.13
O $190,650.87
O $-17,098.20
O $427,537.55
Transcribed Image Text: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 $1.3 million in annual pretax cost savings. The system costs $6.3 million and will be depreciated straight-line to zero over four years. Wildcat's tax rate is 31 percent, and the firm can borrow at 8 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1,700,000 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 $270,000 security deposit at the Inception of the lease. What is the NAL with the security deposit? Multiple Choice $210,719.39 $200,685.13 O $190,650.87 O $-17,098.20 O $427,537.55
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