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 10.8 percent, and the costs and values of investments made at different times in the future are as follows:

Year Cost Value of Future Savings
(at time of purchase) 0 $5,000 $7,000 1 4,400 7,000 2 3,800 7,000 3 3,200 7,000 4 2,600 7,000 5 2,000 7,000

Explanation / Answer

NPV of

year 0 - > 2000

year 1 -> 2600/1.108 = 2,346.57

year 2 -> 3200/1.108^2 = 2,606.58

year 3 -> 3800 / 1.108^3 = 2,793.60

year 4 -> 4400/1.108^4 = 2,919.40

year 5 -> 5000/1.108^5 = 2,994.13

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