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’s opportunity cost of capital is 10 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 4,500 7,000 2 4,000 7,000 3 3,600 7,000 4 3,300 7,000 5 3,100 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:

Explanation / Answer

Year cost future savings present value @10% present value of cash outflow present value of cash inflow NPV 0 5000 7000 1 5000 7000 2000 1 4500 7000 0.909090909 4090.9091 6363.636364 2272.727 2 4000 7000 0.826446281 3305.7851 5785.123967 2479.339 3 3600 7000 0.751314801 2704.7333 5259.203606 2554.47 4 3300 7000 0.683013455 2253.9444 4781.094188 2527.15 5 3100 7000 0.620921323 1924.8561 4346.449261 2421.593 19280.228 33535.50739 14255.28 total NPV

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