The Seago Company is planning to purchase 500 000 of equipment
The Seago Company is planning to purchase $500,000 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 .... $200,000
2 .... 150,000
3 .... 100,000
4 .... 60,000
5 .... 60,000
6 .... 40,000
7 .... 40,000

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 three years or less, should the company make this investment?

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