Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $

Question:

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 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%, a 10-year project life, and a discount rate of 12%?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...