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24 May, 12:58

What is the net present value of the mechanical drying equipment investment opportunity (as of December 1985) assuming a 12% cost of capital for Paperco. Assume the rumored new tax proposal is not enacted and that the new drying equipment replaces the old equipment in December 1986.

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  1. 24 May, 13:05
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    NPV=0.893*Investment cost

    Explanation:

    Net Present Value, NPV = (Cash flows) / (1+r) ⁿ

    r=cost of capital = 12%

    n = period = 1 year

    Cash flow = initial investment/inflow

    NPV=Cashflow / (1+0.12) ¹

    NPV=0.893*Investment cost
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