Leasing Assignment Help Online , New Oil Co. is considering replacement of their highly specialised drilling equipment. The new equipment is computer assisted and therefore provides New Oil with $2.9 million in annual pre-tax savings. New Oil can purchase the equipment at $9.7 million which will be depreciated straight-line to zero over five years. The local bank is prepared to provide New Oil with $2.9 million loan at an interest rate of 9 percent with annual repayments spread over five years. Alternatively, New Oil can lease this equipment from ABC Leasing The lease contract will require an annual payment of $2.15 million per year payable at the beginning of each year for five years
a) Assuming a tax rate of 34% for New Oil, calculate the NAL of leasing rather than buying this equipment Should New Oil lease or buy this equipment? (10 marks)
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