Question
11. Break-Even Analysis. Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The materials cost for a
11. Break-Even Analysis. Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The materials cost for a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $200,000. The machinery cost $1 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?
b. What is the NPV break even level of sales assuming a tax rate of 35%, a 10 year project life, and a discount rate of 12%?
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