The Seago Company is planning to purchase $581,000 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 $258,000 2 168,000 3 121,000 4 81,600 5 81,600 6 48,000 7 48,000 Total $806,200

(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 Seago requires a payback period of three years or less, should the company make this investment?

The company should not should make this investment.