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.

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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