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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’s opportunity cost of capital is 17.0 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)
Cost/ Value of future savings
0 $5,000 $7,000
1. 4,300 7,000
2. 3,600 7,000
3. 2,900 7,000
4. 2,200 7,000
5. 1,500 7,000
Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.) The NPV of each choice is:
NPV0 = $
NPV1 = $
NPV2 = $
NPV3 = $
NPV4 = $
NPV5 = $
Suggest when should Bell Mountain buy the new accounting system? Bell Mountain should purchase the system in year 2 year 3 year 4 year 5 year 1.
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