Problem:
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 13.1 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 |
4,150 |
7,000 |
|
| 2 |
3,300 |
7,000 |
|
| 3 |
2,450 |
7,000 |
|
| 4 |
1,600 |
7,000 |
|
| 5 |
750 |
7,000 |
|
Required:
Question: Calculate the NPV of each choice.
Note: Provide support for your rationale.