Sunk costs and opportunity costsMasters Golf Products, Inc., spent three years and $1,100,000 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 $1,830,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows of $742,000 per year for the next 11 years. The company has determined that the existing line could be sold to a competitor for $245,000.

a. How should the $1,100,000 in development costs be classified?

b. How should the $245,000 sale price for the existing line be classified?

c. What are all the incremental cash flows for years 0 thru 11?

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