Lease Valuation. Printing World thinks it may need a new colour 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 companys target debt-equity ratio is .5. The companys tax rate is 30%.

a) What is the NPV of buying the press? Show your work.

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.