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 14.5 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

4,300

7,000

2

3,600

7,000

3

2,900

7,000

4

2,200

7,000

5

1,500

7,000

Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)

The NPV of each choice is:

NPV0 = $

NPV1 = $

NPV2 = $

NPV3 = $

NPV4 = $

NPV5 = $

Suggest when should Bell Mountain buy the new accounting system?

Bell Mountain should purchase a new system in 1,2,3,4 OR 5 years?

Year

Cost

Value of Future Savings
(at time of purchase)

0

$5,000

$7,000

1

4,300

7,000

2

3,600

7,000

3

2,900

7,000

4

2,200

7,000

5

1,500

7,000

Explanation / Answer

Hi,

Please find the answer as follows:

System should be purchased in Year 5.

Thanks.

Year Cost Value of Future Savings (at time of purchase) 0 5,000 7,000 2,000 1 4,300 7,000 1814 2 3,600 7,000 1739 3 2,900 7,000 1763 4 2,200 7,000 1873 5 1,500 7,000 2057

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