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

The NPV of each choice is:

Bell Mountain should purchase the syatem in what year? Note Years 1 and 5 are NOT correct.

Year Cost Value of Future Savings
(at time of purchase) 0 $5,000 $7,000 1 4,450 7,000 2 3900 7,000 3 3350 7000 4 2800 7000 5 2250 7000 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 14.8 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: Bell Mountain should purchase the syatem in what year? Note Years 1 and 5 are NOT correct.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Part B:

Machine should be purchase in Year 4 as it would result in highest NPV.

Thanks.

Year Savings (A) Cost (B) Benefit (A-B) Present Value 0 7,000 5,000 2,000 2000 1 7,000 4,450 2,550 2221 2 7,000 3900 3,100 2352 3 7000 3350 3,650 2412 4 7000 2800 4,200 2418 5 7000 2250 4,750 2382

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