Problem: The Bell Mountain Vineyards is considering upgrading its current manual accounting system with the high-end electronic system. While new accounting system would save the company money, the cost of system continues to decline. The Bell Mountain’s opportunity cost of capital is 11.0 percent, and the costs and values of the investments made at dissimilar times in the future are as follows:
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
Evaluate the NPV of each choice.
The NPV of each choice is:
NPV0 = $
NPV1 = $
NPV2 = $
NPV3 = $
NPV4 = $
NPV5 = $
Suggest when must Bell Mountain purchase the new accounting system?