H5 Printing World thinks it may need a new colour printing press. The press will cost $470,000 but will substantially reduce annual operating costs by $232,000 a year, before tax. The press has a 35% CCA rate and will be in its own 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 for Printing World is 11%, the cost of debt is 8%, and the company’s target debt-equity ratio is 1.00. The company’s tax rate is 35%. a. What is the NPV of buying the press? (Do not round intermediate calculations. Round your answer to the nearest dollar.) b. The equipment manufacturer is offering to lease the press for $115,000 a year, for 4 years, payable in advance. Should Printing World accept the offer?
H5
Printing World thinks it may need a new colour printing press. The press will cost $470,000 but will substantially reduce annual operating costs by $232,000 a year, before tax. The press has a 35% CCA rate and will be in its own 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 NPV of buying the press? (Do not round intermediate calculations. Round your answer to the nearest dollar.)
b. The equipment manufacturer is offering to lease the press for $115,000 a year, for 4 years, payable in advance. Should Printing World accept the offer?
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