A monopolist earns $80 million annually and will maintain that level of profit indefinitely, provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $80 million the first period but fall to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and profits in each period are realized at the beginning of each period. What is the present value of the firm's current and future earnings if entry occurs?
A. $280 million
B. $400 million
C. $350 million
D. $255 million
Answer: D
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