I need A-C answered Sunk costs and opportunity costs Masters Golf Products, Inc., spent 3 years and $1,180,000 to develop its new line of club heads to replaceto invest $1,780,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows of $755,000 per year for the next 10 years. The company has determined that the existing line could be sold toa competitor for $242,000.a. How should the $1,180,000 in development costs be classified?line that is becoming obsolete. To begin manufacturing them, the company will haveb. How should the $242,000 sale price for the existing line be classified?c. What are all the relevant cash flows for years 0 thru 10? (Note: Assume that all of these numbers are net of taxes.)O A. The $1,180,000 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.O B. The $1,180,000 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.O C. The $1,180,000 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.O D. The $1,180,000 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.b. How should the $242,000 sale price for the existing line be classified? (Select the best answer below.)O A. The $242,000 sale price of the existing line is a sunk cost. If Masters Golf Products proceeds with the new line of clubs the existing line worth $242,000 will be wasted.O B. The $242,000 sale price of the existing line is an opportunity cost. If Masters Golf Products does not proceed with the new line of clubs it will lose the opportunity to recover the $242,000 in inventory.O C. The $242,000 sale price of the existing line is an opportunity cost. If Masters Golf Products does not proceed with the new line of clubs they will not receive the $242,000.O D. The $242,000 sale price of the existing line is a sunk cost. If Masters Golf Products does not proceed with the new line of clubs they will not receive the $242,000.c. The cash flow for year 0 is $(Round to the nearest dollar.)The cash flow for years 1 thru 10 is $. (Round to the nearest dollar.)Click to select your answer(s).

To solve this question we need to understand the basic concepts used in decision making like:- Sunk…

Sunk costs and opportunity costs Masters Golf Products, Inc., spent 3 years and $1,180,000 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 $1,780,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows of $755,000 per year for the next 10 years. The company has determined that the existing line could be sold to a competitor for $242,000. a. How should the $1,180,000 in development costs be classified? b. How should the $242,000 sale price for the existing line be classified? c. What are all the relevant cash flows for years 0 thru 10? (Note: Assume that all of these numbers are net of taxes.)

Sunk costs and opportunity costs Masters Golf Products, Inc., spent 3 years and $1,180,000 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 $1,780,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows of $755,000 per year for the next 10 years. The company has determined that the existing line could be sold to a competitor for $242,000. a. How should the $1,180,000 in development costs be classified? b. How should the $242,000 sale price for the existing line be classified? c. What are all the relevant cash flows for years 0 thru 10? (Note: Assume that all of these numbers are net of taxes.)

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...

See similar textbooks

Similar questions

Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
Average rate of returnnew product Hana Inc. is considering an investment in new equipment that will be used to manufacture a smart-phone. The phone is expected to generate additional annual sales of 10,000 units at 300 per unit. The equipment has a cost of 4,500,000, residual value of 500,000, and a 10-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Determine the average rate of return on the equipment.
Net Present Value Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of 2,700,000. Producing the printer requires an investment in new equipment costing 2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for 360,000. Working capital is also expected to increase by 360,000, which Talmage will recover by the end of the new products life cycle. Annual cash operating expenses are estimated at 1,620,000. The required rate of return is 8%. Required: Prepare a schedule of the projected annual cash flows. Calculate the NPV using only discount factors from Exhibit 12B.1 (p. 670). Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).
REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings from 24,000 to 46,000 per year. The new machine will cost 80,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firms WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer.