FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 24

outlay of $2,000 for a new machine tool g. An outlay of $240,000 for
a new building h. An outlay of $1,000 for a marketing research report
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.

P11–7 Book value Find the book value for each of the assets shown
in the accompanying table, assuming that MACRS depreciation is
being used. See Table 4.2 on page 120 for the applicable depreciation
percentages.
Asset Installed cost Recovery period (years)
since purchase (years)
A
$ 950,000
5
B
40,000
3
C
96,000
5
D
350,000
5
E
1,500,000
7

Elapsed time
3
1
4
1
5

P11–8 Book value and taxes on sale of assets Troy Industries
purchased a new machine 3 years ago for $80,000. It is being