Required:

Identify and briefly explain whether each of the above transactions would be treated as a incremental cash flow, sunk cost or an opportunity cost, in developing the relevant cash flows associated with the proposed sensor installation decision.

Besides the estimated net profits, the following transactions would be associated with the proposed project.

(i) The new production line would require the repossession of an entire floor of its production plant. This level of the plant is currently leased to a textile recycling sorter, whose rent will expire in 2 months. The lease is likely to be renewed.

(ii) Part of an existing conveyor system in-place on the production level could be integrated into the new production line. This conveyor system was installed 5 years ago for $500 000.

(iii) It is predicted that this hair straightening dryer would increase annual sales of an existing product line, heat protectant spray.

(iv) Taomi would need to appoint a Product Director for this new product range, and this portfolio would be assigned to the current Product Director of air purifier.

(v) The initial investment of $4 million required could have been invested in a mutual fund with similar projected return from this project.