7.9 One of the company's technology patents is about to expire, inducing a likely rush of prod. uct entries from the competition. Currently, the product line is projected to have stagnant sales of 1 million units for the next seven years from 1998 to 2005. The unit price is expect- ed to decrease slightly by 1 percent per year during the same period. The profitability of this product is estimated to be $1,166,000 in 1998, as indicated in Table 7.A5. TABLE 7.A5 Simplified Income Statement Income Statement 1998 (dollars) Sales CGS Depreciation SG&A EBIT Tax at 40 percent 20,000.00 10,000.00 10,570.00 7,000.00 1,943.00 777.00 EBIAT 1,166.00 Both the cost of goods sold (CGS) and SG&A expenses are expected to increase by 3 percent per year from 1998 to 2004. The depreciation charge is estimated to remain con- stant at $1 million per year, and there is no salvage value for the equipment at the end of 2004. If the product is continued as planned, the company can recover a working capital of $3.9 million at the end of 2004 from sales of residual inventory and collection of accounts receivable after having discharged all applicable short-term liabilities. If the management decides to discontinue this product line at the end of 1997, then it can sell the fixed assets related to the product line (having a book value of $7 million for about $3 million, and the loss of $4 million would be tax deductible. Furthermore, line company can recover the working capital (inventory plus accounts receivable, minus av counts payable and other expenses) worth about $3.9 million at the end of 1997. Assuming that the appropriate discount rate is 12 percent, would you reco that this product line be discontinued at the end of 1997 or be continued through zu What is the What is the next best alternative open to the company, besides eithers down immediately at the end of 1997 or continuing to run it until 2004 F11