The Riverbed Company is planning to purchase $591,800 of equipment with an estimated seven-year life...
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Accounting
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
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