1) Dime a Dozen Diamonds manufactures synthetic diamonds by treating carbon. Every diamond can be sold for= $100. Materials cost for the standard diamond is= $50. Fixed costs acquired every year for factory upkeep and administrative expenses are= $201,000. Machinery costs= $1.1 million and is declined straight-line over ten years to a salvage value of 0.
a) Determine accounting break-even level of sales in terms of number of diamonds sold?
b) Compute the NPV break-even level of sales assuming a tax rate of= 40%, a ten-year project life, and the discount rate of 10%?
2) XYZ Artifacts can make keepsakes which will be sold for= $50 each. Non depreciation fixed costs are= $2,500 per year and variable costs are= $30 per unit.
a) If project needs the initial investment of= $2,000 and is expected to last for five years and firm pays no taxes. Initial investment will be declined straight-line over five years to final value of 0, and te discount rate is= 10%. Determine the accounting and NPV break-even levels of sales?
b) What will be accounting and NPV break-even levels of sales, if firm's tax rate is= 40%?