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    Clarification of Break-Even Analysis

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    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 straightline 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 explains how to calculate the accounting break-even level and the NPV break-even level. The calculations are made in an easy to understand way.