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P11?4 Sunk costs and opportunity costs Masters Golf Products, Inc.,

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Question

P11?4 Sunk costs and opportunity costs Masters Golf Products, Inc., spent 3 years and;$1,000,000 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 $1,800,000 in;new equipment. The new clubs are expected to generate an increase in operating cash;inflows of $750,000 per year for the next 10 years. The company has determined that;the existing line could be sold to a competitor for $250,000.;a. How should the $1,000,000 in development costs be classified?;b. How should the $250,000 sale price for the existing line be classified?;c. Depict all the known relevant cash flows on a time line.

 

Paper#21765 | Written in 18-Jul-2015

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