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 17.9 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 4,200 7,000 2 3,400 7,000 3 2,600 7,000 4 1,800 7,000 5 1,000 7,000

Explanation / Answer

Year 0: savings = $2000. NPV = $2000

Year 1: savings = 7000-4200 = 2800. NPV = 2800/1.179 = 2375

Year 2: savings = 7000-3400 = 3600. NPV = 3600/1.179^2 = 2590

Year 3: savings = 7000-2600 = 4400. NPV = 4400/1.179^3 = 2685

Year 4: savings = 7000-1800 = 5200. NPV = 5200/1.179^4 = 2691

Year 5: savings = 7000-1000 = 6000. NPV = 6000/1.179^5 = 2634

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.