Question: Hewlett- Packard has designed a new type of printer that produces professional- quality photos. These new printers took 2 years to develop, with research and

Hewlett- Packard has designed a new type of printer that produces professional- quality photos. These new printers took 2 years to develop, with research and development running at $ 10 million after taxes over that period. Now all thats left is an investment of $ 22 million after taxes in new production equipment. It is expected that this new product line will bring in free cash flows of $ 5 million per year for each of the next 10 years. In addition, if Hewlett- Packard goes ahead with the new line of printers, the current production facility for the old printers that are to be replaced with this new line could be sold to a competitor, generating $ 3 million after taxes.

b. How should the 3 million be treated?

c. What are the cash flows associated with the new printers?

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