Sunk costs and opportunity costsMasters Golf Products, Inc., spent

44

years and

$ 1 comma 110 comma 000$1,110,000

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 comma 750 comma 000$1,750,000

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

$ 751 comma 000$751,000

per year for the next

1414

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

$ 249 comma 000$249,000.

a. How should the

$ 1 comma 110 comma 000$1,110,000

in development costs be classified?

b. How should the

$ 249 comma 000$249,000

sale price for the existing line be classified?

c. What are all the relevant cash flows for years 0 thru

1414?

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