The Riverbed Company is planning to purchase $591,800 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 Flows

1 $235,000

2 $165,500

3 $118,500

4 $62,400

5 $62,400

6 $43,500

7 $43,500

Total $730,800

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

Payback period ______ years and ______ months

(b) If Riverbed requires a payback period of 4 years or less, should the company make this investment?

the company should / should not make the investment