The Seago Company is planning to purchase $436,400 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 $177,000
2 147,000
3 104,000
4 50,400
5 50,400
6 42,000
7 42,000
(a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. How many years and how many months?