Luxottica Group spent 2 years and €1,000,000 to develop its new line of folding eyewear to replace an older line. To begin manufacturing them, the company will have to invest €2,500,000 in new equipment. The new eyewear line is expected to generate an increase in operating cash inflows of €1,100,000 per year for the next 8 years. The company has determined that the existing line could be sold to a competitor for €300,000.

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

b. How should the €300,000 sale price for the existing line be classified?

c. Depict all the known incremental cash flows on a timeline.