Sunk costs and opportunity costs Masters Golf Products, Inc., spent four years and $$1,170,000$ 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 $$1,790,000$ in new equipment. The new clubs are expected to generate an increase in operating cash inflows of $$752,000$ per year for the next $13$

years. The company has determined that the existing line could be sold to a competitor for $$249,000.$

a$.$ How should the $$1,170,000$ in development costs be classified?

b$.$ How should the $$249,000$ sale price for the existing line be classified?

c$.$ What are all the incremental cash flows for years $0$ thru $13?($Note: Assume that all of these numbers are net of taxes.$)$

a$.$ How should the $$1,170,000$ in development costs be classified? $($Select the best answer below.$)$

A$.$ The $$1,170,000$ development costs should be considered part of the decision to go ahead with the new production. This money has already been spent as part of the opportunity cost of the

project.

B$.$ The $$1,170,000$ development costs should not be considered part of the decision to go ahead with the new production. This money has already been spent and cannot be retrieved so it is a sunk

cost$.$

C$.$ The $$1,170,000$ development costs should be considered part of the decision to go ahead with the new production. This money has already been spent as part of the investment project.

D$.$ The $$1,170,000$ development costs should not be considered part of the decision to go ahead with the new production. This money has already been spent and cannot be retrieved so it is an

opportunity cost.