The Seago Company is planning to purchase $650,000 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         . . . . . . . . .     $250,000

2         . . . . . . . . .       200,000

3         . . . . . . . . .       130,000

4         . . . . . . . . .         60,000

5         . . . . . . . . .        60,000

6         . . . . . . . . .        40,000

7        . . . . . . . . .        40,000

Total . . . . . . . . .    $780,000

Required

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

b. If Seago requires a payback period of four years or less, should the company make this investment?