Hewlett-Packard has designed a new type of printer that produce 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 that's 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 tax
a. How should the $10 million of research and development be treated?
b. How should the $3 million from the sale of the existing production facility for the old printers be treated?
c. Given the information above, what are the cash flows associated with the new printers?