Dime-a-Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can besold for $170. The materials cost for a synthetic diamond is $110. The fixed costs incurred eachyear for factory upkeep and administrative expenses are $1,250,000. The machinery costs $1.21million 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?Answer is complete but not entirely correct.20,833 diamondsAccounting break-evenb. What is the NPV break-even level of sales assuming a tax rate of 35%, a 10-year projectlife, and a discount rate of 12%?Note: Do not round intermediate calculations. Round your final answer to the nearestwhole number.Answer is complete but not entirely correct.13,489 diamondsNPV break-even level of sales

a. Accounting break-even level of sales is the level of sales where total fixed costs exactly equals…

Answered: Dime-a-Dozen Diamonds makes synthetic…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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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 $60. The fixed costs incurred each year for factory upkeep and administrative expenses are $211,000. The machinery costs $2.0 million and is depreciated straight-line over 10 years to a salvage value of zero. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.) b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 21%, a 10-year project life, and a discount rate of 10%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
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