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:

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

The NPV of each choice is:

Year Cost Value of Future Savings
(at time of purchase) 0 $5,000 $7,000 1 4,180 7,000 2 3,360 7,000 3 2,640 7,000 4 2,020 7,000 5 1,500 7,000

Explanation / Answer

Year Cost Savings Net Discount NPV 0 -5000 7000 2000 1 2000.00 1 -4180 7000 2820 0.909 2563.64 2 -3360 7000 3640 0.826 3008.26 3 -2640 7000 4360 0.751 3275.73 4 -2020 7000 4980 0.683 3401.41 5 -1500 7000 5500 0.621 3415.07

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