11-73 Net Present Value and Payback Period for a Purchase Decision

Goal: Use the attachedspreadsheet to compute the NPV and payback period to assist with a purchase decision. Use the results to answer questions about your findings.

Scenario: Amazon.com is planning to purchase a new bar-coding machine for one of its warehouses. prepare a simple analysis to determine whether Amazon should purchase the machine. The bar-coding machine costs $60,000. It has a 5-year economic life and an estimated residual value of $10,000. The estimated annual net cash flow from the machine is $16,000. Amazon.com's required rate of return is 16%.

When you have completed your spreadsheet, answer the following questions:

1 What is the machine's NPV?

2 What is the machine's payback period?

3 Should Amazon.com purchase the machine? Why or why not?

Please use the attached spreadsheet:

If you need further info, let me know