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 16.4 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 4,400 7,000 2 3,800 7,000 3 3,200 7,000 4 2,600 7,000 5 2,000 7,000

Explanation / Answer

this is correct answer . ignore my previous post ============================================================================================================================================================================================= NPV0 = 2,000 ============================================================================================================================================================================================= NPV1 = 2,600 / (1.162)^1 = 2237.52 ============================================================================================================================================================================================= NPV2 = 3,200 / (1.162)^2 = 2369.94 ============================================================================================================================================================================================= NPV3 =3800 /(1.162)^3 =2421.95 ============================================================================================================================================================================================= NPV4 = 4400 / (1.162)^4 = 2413.39 ============================================================================================================================================================================================= NPV5 = 5000 / (1.162)^5 = 2360.14 ============================================================================================================================================================================================= Therefore the company should buy it in year 3.

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