CASE STUDY: Ashworth Textiles

Your manager, the chief financial officer (CFO) for Ashworth Textiles, has just handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm's fabric 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 three-year lives because Ashworth is planning to introduce an entirely new fabric at that time.