Nuggets Printing is considering the purchase of a replacement printing press. The total installed cost of the press is $ $2\mathrm{.}2$ million. This outlay will be partially offset by the sale of an existing press. The old press has zero net book value, cost $$1$ million ten years ago and can be sold currently for $ $0\mathrm{.}2$ million before taxes. As a result of acquiring the new press, sales in each of the next five years are expected to increase by $ $1\mathrm{.}6$ million but product costs, excluding depreciation, will represent fifty percent of sales. The new press will require that creditors be upped by four hundred thousand dollars and debtors increase by six hundred thousand dollars. The replacement printing press will also be depreciated using a straight line method to a residual value of three hundred thousand dollars but will only fetch two hundred and fifty thousand dollars on the market. Investing in such assets attracts a Special Initial Allowance $($SIA$)$ of twenty five percent of the installed cost to be spread equally over the useful life of the asset. The firm is subject to a twenty percent tax rate on both ordinary income and capital gains. Wells Printing cost of capital is eighteen percent per annum. Assume that depreciation is tax deductible.

Required

Advise the company on whether it should take on board the replacement printing press or not, giving reasons. Use the Profitability Index Approach. $(40$ marks$)$