One of the best examples I can give is a pizza shop. If we are the only pizza shop for miles, we almost have a monopoly and it is tempting to charge as much as we can. But, if we charge too much, since the barriers to entering the market are smaller (a food license and a pizza oven) we will encourage a competitor. If our cost is $2 a slice which includes $1 fixed costs and $1 variable at our current sales level of 2,000 slices a month with a selling price of $6 a slice (it is good pizza) than currently our margin per slice is $4. Market research says we can sell 10,000 slices a month, which we have the capacity to do with our current establishment, if our price is $4 a slice instead, we should do it. This is not because we will get more market share, but we will make much more profit. While the NPV may decrease, if it is still positive we should proceed. Our current fixed cost is $2,000 and that will not change, but per slice our new fixed cost will be .20 instead of $1 per slice. Our new margin is lower at 2.80 (4-.2-1) but with our increase in volume, our gross margin gos from $8,000 to $28,000! In addition, we create a barrier to entry as a newer pizza shop would need to compete with our price and our quality will stay as good as it ever was because we are not cutting corners.

What WACC would make this a good idea