Sunk costs and opportunity costs Luxottica Group spent two 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 eight 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.