New CDP or new DAC?

One of the weak links in my system is my NAD C542 CDP, which when I bought it was a recommended budget CDP. In the new Stereophile Sam Tellig was extremely taken with the Music Fidelity M1DAC. So the question which occurred to me was whether it would be better to buy a new, better CDP, or to use my existing CDP as a transport and feed the signal to a new DAC instead (i.e. assume that, for example, the M1DAC is significantly better than the NAD's internal DAC). Also, if the recommendation is to go the DAC route, the NAD would let me use either a coax or optical cable to connect to the DAC - any preferences? So, I guess I have two questions: CDP or DAC, and if DAC, which connection path to the DAC? Thanks in advance for your suggestions.