Printing World thinks it may need a new colour printing press. The press will cost $500,000 but

Question:

Printing World thinks it may need a new colour printing press. The press will cost $500,000 but will substantially reduce annual operating costs by $215,000 a year, before tax. The press has a 30% 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 12%, the 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 $112,000 a year, for 4 years, payable in advance. Should Printing World accept the offer?

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...