Leslie Roberts manages the Eastern Division of Garrick Company. Her division is considering which of the following projects to take on for the next five years. She has computed the cost and revenue estimates for each project as follows:

	AGS	SMS
Initial investment:
Cost of equipment (zero salvage value)	$ 350,000	$ 550,000
Annual revenues and costs:
Sales revenues	$ 390,000	$ 470,000
Variable expenses	$ 178,000	$ 210,000
Depreciation expense	$ 70,000	$ 110,000
Fixed out-of-pocket operating costs	$ 87,000	$ 67,000

The companys discount rate is 20%. In the past, Leslies annual bonuses were determined by her divisions return on investment (ROI), which has exceeded 22% each of the last three years.

Required (show your work):

1. Calculate the payback period for each product.

2. Calculate the net present value for each product.

3. Calculate the internal rate of return for each product.

4. Calculate the profitability index for each product.

5. Calculate the simple rate of return for each product.

6a. For each measure, identify which product is preferred.

6b. If you were Leslie, which of the two products would you produce? Why?