PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 10, Problem 11PS
a
Summary Introduction
To calculate: The accounting break-even sales level.
b
Summary Introduction
To calculate: The
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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 $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 the number of diamonds sold?
Note: Do not round intermediate calculations.
b. What is the NPV break-even level of sales assuming a tax rate of 21%, a 10-year project life, and a discount rate of 12%?
Note: Do not round intermediate calculations. Round your answer up to the nearest whole unit.
> Answer is complete but not entirely correct.
diamonds per year
5,000
7,332
diamonds per year
a. Break-even sales
b. Break-even sales
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $180. The materials cost for a synthetic diamond is $120. The fixed costs incurred each year for factory upkeep and administrative expenses are $1,400,000. The machinery costs $1.24 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%? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $120. The materials cost for a standard diamond is $70. The fixed costs incurred each year for factory upkeep and administrative expenses are $215,000. The machinery costs $2.3 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 10%?
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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