Masters Golf Products, Inc., spent

3

years and

$1,150,000

to develop its new line of club heads to replace a line that is becoming obsolete. To begin manufacturing them, the company will have to invest

$1,850,000

in new equipment. The new clubs are expected to generate an increase in operating cash inflows of

$741,000

per year for the next

10

years. The company has determined that the existing line could be sold to a competitor for

$246,000.

a. How should the

$1,150,000

in development costs be classified?b. How should the

$246,000

sale price for the existing line be classified?c. What are all the relevant cash flows for years 0 thru

10?

(Note: Assume that all of these numbers are net of taxes.)