Q1) Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $120. The materials cost for a standard diamond is $70. The fixed costs incurred each year for factory upkeep and administrative expenses are $215,000. The machinery costs $2.3 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 number of diamonds sold? (Do not round intermediate calculations.)
Break-even Sales = how many diamonds per year
b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 40%, a 10-year project life, and a discount rate of 10%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Break-even Sales = how many diamonds per year
Q2) Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are $1,100 per year, and variable costs are $60 per unit. The initial investment of $4,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 12%.
a. What is the accounting break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Accounting break-even level of sales = how many units
b. What is the NPV break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
NPV break-even level of sales = how many units