Printing World thinks it may need a new color printing press. The press will cost $500,000 but will substantially reduce operating costs by $250,000 per year, before tax. The press has 30% CCA rate and will remain in its asset pool. The first CCA deduction is made in year 0. The press will operate for 4 years and then be worthless. The cost of equity Is 12%, the pre-tax cost of debt is 8%, and the company’s target debt-equity ratio is .5. The company’s tax rate is 30%. a) What is the NPV of buying the press? b) The equipment manufacturer is offering to lease the press for 4 years for $112,000 a year, payable in advance i.e. at the beginning of the year. Should Printing World accept the offer? Give reasons in support of your conclusion. Show all of your working. Do not use Excel.
Printing World thinks it may need a new color printing press. The press will cost $500,000 but will substantially reduce operating costs by $250,000 per year, before tax. The press has 30% CCA rate and will remain in its asset pool. The first CCA deduction is made in year 0. The press will operate for 4 years and then be worthless. The
a) What is the
b) The equipment manufacturer is offering to lease the press for 4 years for $112,000 a year, payable in advance i.e. at the beginning of the year. Should Printing World accept the offer? Give reasons in support of your conclusion.
Show all of your working. Do not use Excel.
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