Bell Mountain Vineyards is considering updating its current manual accounting sy

Question

Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain%u2019s opportunity cost of capital is 11.8 percent, and the costs and values of investments made at different times in the future are as follows:

The NPV of each choice is:

Year Cost Value of Future Savings
(at time of purchase) 0 $5,000 $7,000 1 4,650 7,000 2 4,300 7,000 3 3,950 7,000 4 3,600 7,000 5 3,250 7,000

Explanation / Answer

Bell mountain should purchase the system in 3 year

Year Cost Value of Future Savings (at time of purchase) NPV 0 $5,000 $7,000 $        2,000 1 4,650 7,000 $        2,102 2 4,300 7,000 $        2,160 3 3,950 7,000 $        2,183 4 3,600 7,000 $        2,176 5 3,250 7,000 $        2,147

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