ASSUME THAT YOU RECENTLY WENT TO WORK FOR ALLIED COMPONENTS COMPANY, A SUPPLIER OF AUTO REPAIR PARTS USED IN THE AFTER$-$MARKET WITH PRODUCTS FROM DAIMLER CHRYSLER, FORD, AND OTHER AUTO MAKERS. YOUR BOSS, THE CHIEF FINANCIAL OFFICER $($CFO$),$ HAS JUST HANDED YOU THE ESTIMATED CASH FLOWS FOR TWO PROPOSED PROJECTS. PROJECT L INVOLVES ADDING A NEW ITEM TO THE FIRM$$S IGNITION SYSTEM LINE; IT WOULD TAKE SOME TIME TO BUILD UP THE MARKET FOR THIS PRODUCT, SO THE CASH INFLOWS WOULD INCREASE OVER TIME. PROJECT S INVOLVES AN ADD$-$ON TO AN EXISTING LINE, AND ITS CASH FLOWS WOULD DECREASE OVER TIME. BOTH PROJECTS HAVE $3-$YEAR LIVES, BECAUSE ALLIED IS PLANNING TO INTRODUCE ENTIRELY NEW MODELS AFTER

$3$ YEARS.

HERE ARE THE PROJECTS$$ NET CASH FLOWS $($IN THOUSANDS OF DOLLARS$)$:

EXPECTED NET CASH FLOWS

YEAR PROJECT L PROJECT S

$0($$$100)($$$100)$

$11070$

$26050$

$38020$

DEPRECIATION, SALVAGE VALUES, NET OPERATING WORKING CAPITAL REQUIRE$-$MENTS, AND TAX EFFECTS ARE ALL INCLUDED IN THESE CASH FLOWS.

THE CFO ALSO MADE SUBJECTIVE RISK ASSESSMENTS OF EACH PROJECT, AND HE CONCLUDED THAT BOTH PROJECTS HAVE RISK CHARACTERISTICS THAT ARE SIMILAR TO THE FIRM$$S AVERAGE PROJECT. ALLIED$$S WEIGHTED AVERAGE COST OF CAPITAL IS $10$ PERCENT. YOU MUST NOW DETERMINE WHETHER ONE OR BOTH OF THE PROJECTS SHOULD BE ACCEPTED.