Bell Mountain Vineyards is considering updating its current manual accounting sy

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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

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 16.0 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:

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Part B:

The machine should be purchased in Year 2 as it has highest NPV.

Thanks.

Value of Future Savings (A) Cost (B) Difference (A-B) NPV 0 7,000 5,000 2,000 2,000 1 7,000 4,550 2,450 2112 2 7,000 4,100 2,900 2155 3 7,000 3,650 3,350 2146 4 7,000 3,200 3,800 2099 5 7,000 2,750 4,250 2023

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