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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 10 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 4,500 7,000
2 4,000 7,000
3 3,600 7,000
4 3,300 7,000
5 3,100 7,000
Calculate the NPV of each choice.
The NPV of each choice is: NPV0 = $ 2000
NPV1 = $
NPV2 = $
NPV3 = $
NPV4 = $
NPV5 = $
Suggest when should Bell Mountain buy the new accounting system? Bell Mountain should purchase the system in.
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