Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The material cost of a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $217,000. The machinery costs $2.6 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of the number of diamonds sold? Note: Do not round intermediate calculations. b. What is the NPV break-even level of sales assuming a tax rate of 21%, a 10-year project life, and a discount rate of 10%? Note: Do not round intermediate calculations. Round your answer up to the nearest whole unit. a. Break-even sales b. Break-even sales 7,950 diamonds per year diamonds per year
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The material cost of a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $217,000. The machinery costs $2.6 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of the number of diamonds sold? Note: Do not round intermediate calculations. b. What is the NPV break-even level of sales assuming a tax rate of 21%, a 10-year project life, and a discount rate of 10%? Note: Do not round intermediate calculations. Round your answer up to the nearest whole unit. a. Break-even sales b. Break-even sales 7,950 diamonds per year diamonds per year
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The material cost of a
standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $217,000. The
machinery costs $2.6 million and is depreciated straight-line over 10 years to a salvage value of zero.
a. What is the accounting break-even level of sales in terms of the number of diamonds sold?
Note: Do not round intermediate calculations.
b. What is the NPV break-even level of sales assuming a tax rate of 21%, a 10-year project life, and a discount rate of 10%?
Note: Do not round intermediate calculations. Round your answer up to the nearest whole unit.
a. Break-even sales
b. Break-even sales
7,950 diamonds per year
diamonds per year
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