Create a spreadsheet to compute the NPV and payback period to assist with a purchase decision. Use to results to answer questions about your findings.
Scenario: Amazon.com is planning to purchase a new bar-coding machine for one of its warehouses. You have been asked to 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%.
Once the spreadsheet is completed 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?