Problem 10-11 Break-Even Analysis (L03) 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 $219,000. The machinery costs $1.5 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? (Do not round intermediate calculations.) b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 21%, a 10-year project life, and a discount rate of 14%? (Do not round intermediate calculations. Round your answer to the nearest whole number.) a Break-even sales _ diamonds per year a Break-even sales _ diamonds per year Problem 9-16 Project Evaluation (L02) Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $12 million. The system will last 4 years. Do-lt-Right sells a sturdier but more expensive system for $13 million; it will last for 5 years. Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero overtheir useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 35%, and the discount rate is 15%. Either machine will be replaced at the end of its life. a. What is the equivalent annual cost of investing in the cheap system? (Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places.) b. What is the equivalent annual cost of investing in the more expensive system? (Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places.) c. Which system should Blooper install? a. Equivalent annual cost millions Io-ltRight h. Equivalent annual cost c. Which system should Blooper install? Problem 9-34 Project Evaluation (L04) The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $50. The unit cost of the giftware is $30. Yea r Unit Sales 1 38,000 2 40,000 3 15,000 4 8,000 Thereafter 0 [ It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year 0) investment in working capital of .20 x 38,000 x $50 = $380,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $216,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 21%. What is the net present value of the project? The discount rate is 10%. Use the MACRS depreciation schedule. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Net present value Problem 10-8 Sensitivity Analysis (L03) Emperor's Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years. and expected sales are 7 millionjars of makeup a year. Fixed costs are $3.1 million a year, and variable costs are $1.20 perjar. The product will be priced at $2.90 perjar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 40%. a. What is project NPV under these base-case assumptions? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is NPV if variable costs turn out to be $2.00 perjar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. What is NPV if fixed costs turn out to be $2.8 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) d. At what price perjar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.) a. NPV 15.83 million b. NPV 3.10 million c. NPV 16.52 million d. Price per jar