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Problem 10-11 Break-Even (LO3) Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond...

Problem 10-11 Break-Even (LO3)

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?

b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 40%, a 10-year project life, and a discount rate of 10%?

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