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 Mountains opportunity cost of capital is 15.8 percent, and the costs and values of investments made at different times in the future are as follows:

The NPV of each choice is:

Suggest when should Bell Mountain buy the new accounting system?

Year Cost Value of Future Savings
(at time of purchase) 0 $5,000 $7,000 1 4,150 7,000 2 3,300 7,000 3 2,450 7,000 4 1,600 7,000 5 750 7,000 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's opportunity cost of capital is 15.8 percent, and the costs and values of investments made at different times in the future are as follows: Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.) The NPV of each choice is:

Explanation / Answer

NPVo= -5,000 + 7000= $2000

NPV1=( -4150+7000)/1.158= $2461

NPV2 =(-3300+7000)/1.158^2= $2759

NPV3 =(-2,450+7000)/1.158^3 = $2930

NPV4 =(-1,600+7000)/1.158^4=$3003

NPV5 = (-750+7000)/1.158^5=$3001

Bell Mountain should purchase the system in Year 4

ear Cost Value of Future Savings
(at time of purchase) 0 $5,000 $7,000 1 4,150 7,000 2 3,300 7,000 3 2,450 7,000 4 1,600 7,000 5 750 7,000

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