Barbara's Ballgowns Limited has decided to upgrade the manufacturing equipment of a large

quantity of their ballgowns which operates in a highly competitive market. The move has required a

significant change to production requirements and the initial costs for high level automated

manufacturing equipment is $26 million to set up. They then have an annual capacity of 150,000 of

these locally made ballgowns. Due to the greater efficiency the production cost is lower at an

average of only $85 per ballgown, and this cost is not expected to change in the near future. They

believe this move is here to stay and they are unlikely to be changing this move in the near future.

The equipment for the set-up is expected to have an indefinite physical life and the cost of capital is

a low 3%. The company wants to know what is the competitive price of a ballgown manufactured

locally with this new equipment?