Break even point, NPV
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Problem 9. (Section five) Break-Even. 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 $30. The fixed costs incurred each year for factory upkeep and administrative expenses are $200,000. The machinery costs $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 percent, a 10-year project life, and a discount rate of 12 percent?
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Solution Summary
The solution contains the computation of break even point and also the computation of net present value at the break even point.
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