Connections, Inc., has developed an integrated cable modem and a wireless router. The product also has VOIP (phone jacks to provide telephone over the Internet) and HDMI outlets (which provide video services over the Internet). This product cost $50 million to develop; it has undergone extensive testing and is ready for production.
Currently, the firm is deciding on plant capacity, which could cost either $140 or $160 million. The additional outlay would allow the plant to increase capacity from 2 million to 3 million units.
Expected sales are 2 million units (over the product’s life cycle) if priced at $199 per unit and 3 million units if priced at $174 per unit. The firm expects to have a CMR of 40% at a unit price of $199. Variable selling costs are 10% of selling price.

Required:
Advise Connections, Inc., regarding the optimal plant capacity to install. The product’s life cycle is two years. The plant would have a salvage value of $25 million ($30 million if the larger capacity is chosen) at the end of two years. Ignore the time value of money and taxes in your computations.