The demand for DVD players is expanding rapidly, but the industry is highly competitive. A plant to make DVD players costs $40 million, has an annual capacity of 100,000 units, and has an indefinite physical life.
The variable production cost per unit is $20 and is not expected to change.
If the cost of capital is 10%, what is the price of a DVD player?
Plant 40,000,000
Annual Production Capacity 100,000
Production cost per unit 20
Cost of capital 10%