Problem:
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 $50. The fixed costs incurred each year for factory upkeep and administrative expenses are $180,000. The machinery costs $1.3 million and is depreciated straight-line over 10 years to a salvage value of zero.
Required:
Question 1: What is the accounting break-even level of sales in terms of number of diamonds sold?
Question 2: What is the NPV break-even level of sales assuming a tax rate of 30%, a 10-year project life, and a discount rate of 12%? Please provide full descriptions.