The Blue Spruce Company is planning to purchase $526,200 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment.

Year Projected Cash Flow

1 $202,000

2 152,000

3 105,000

4 50,400

5 50,400

6 42,500

7 42,500

Total $644,800

Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year.

Payback period years and months

If Blue Spruce requires a payback period of 4 years or less, should the company make this investment?

The company should make this investment