By cygne - 6/3/2012 11:19:55 PM
Why is the break-even price calculated as opportunity cost of capital times initial investment per annual unit plus other variable costs?
[NEAS: Suppose a firm must invest $100,000 for a project and it can earn 10% per annum on its investments. It also must expend $40,000 in variable costs for the project. The project costs $40,000 + 10% × $100,000 = $50,000. Unless it earns at least $50,000 from the project, it can do better by investing its capital elsewhere.]
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