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 15.7 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
|
|
Calculate the NPV of each choice.
Suggest when should Bell Mountain buy the new accounting system?
Bell Mountain should purchase the system inyear 4year 5year 1year 2year 3