PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 11PS
a
Summary Introduction
To calculate: The accounting break-even sales level.
b
Summary Introduction
To calculate: The
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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.
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 12%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
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
Knowledge Booster
Similar questions
- 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? Break-even sales b. What is the NPV break-even level of sales assuming a tax rate of 40%, a 10-year project life, and a discount rate of 10%? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Break-even salesarrow_forwardDime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $140. The material cost of a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $216,000. The machinery costs $2.5 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 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 diamonds per year a: Break-even sales b. Break-even sales 4,660 7,621 Xarrow_forwardDime-a-Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $170. The materials cost for a synthetic diamond is $110. The fixed costs incurred each year for factory upkeep and administrative expenses are $1,250,000. The machinery costs $1.21 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? Answer is complete but not entirely correct. 20,833 diamonds Accounting break-even 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%? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. Answer is complete but not entirely correct. 13,489 diamonds NPV break-even level of salesarrow_forward
- Value-Chains makes keychains out of gold. Each keychain can be sold for $100. The materials cost is $40.The Öxed costs incurred each year for factory and administrative expenses are $200,000. The machinerycosts $1 million and is depreciated straight-line over 10 years to a salvage value of zero.1. What is the accounting break-even level of annual sales in terms of number of keychains sold?2. What is the NPV break-even level of sales assuming a tax rate of 35%, a 10-year project life, and adiscount rate of 12%?3. Elaborate on your observations and decisions.arrow_forwardDime a dozen diamonds makes synthetic diamonds . Each can be sold for $100. The material cost $50. The fixed costs are 205,000. Machinery costs 1.6 million and is depreciated straight line over 10 years to a salvage of zero. What is break even sales and and the npv break even salesarrow_forward2 Break-even. Value-Chains makes keychains out of gold. Each keychain can be sold for $100. The materials cost is $40. The Öxed costs incurred each year for factory 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. 1. What is the accounting break-even level of annual sales in terms of number of keychains sold? 2. 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%? 3. Elaborate on your observations and decisions. (Variable cost per unit remains unchanged)arrow_forward
- Question 2: An item may be bought for a price of $12 a piece. Making it would require buying a machine for $60,000 to be paid now, and running expenses of $5,000 per year to be paid at the end of each year. In addition to these fixed expenses, raw material cost is $5 per piece. What is the maximum annual demand for which buying is better than making? Assume that the vendors get paid at the end of the year. Also, assume that the machine has a useful life of 5 years with a salvage value of 15,000. Use i of 11%.arrow_forwardAnderson Inc. uses packing machines to prepare their product for shipping One machine costs $136,000 and lasts about 5 years before it needs to be replaced. The operating cost per machine is $6.000 a year ignoring taxes, what is the equivalent annual cost of one packing machine if the required rate of return is 12%? Multiple Choice $43,208 $51.036 $43728arrow_forwardA chip manufacturer makes video gaming chip that can be sold for $50. The chip material cost is $15 for each chip. The operations costs of the chip manufacturer (administration etc.) is $100000. The chip manufacturing machinery costs $500000 that is depreciated over 10 years to a salvage value of zero. a) What is the accounting breakeven level of sales in terms of number of chips sold? b) b. What is the NPV breakeven level of sales assuming a tax rate of 35%, 10-year project life and a discount rate of 12%.arrow_forward
- Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's fixed costs, F, are $3 million, 50 earth stations are produced and sold each year, profits total $600,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to assets and $500,000 to fixed operating costs. This change will reduce variable costs per unit by $9,000 and increase output by 20 units. However, the sales price on all units must be lowered to $95,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 16%, and it uses no debt. a. What is the incremental profit? Enter your answer in dollars. For example, an answer of $4 million should be entered as 4,000,000, not 4. Round your answer to the nearest dollar. $ 925000 To get a rough idea of the project's profitability, what is the project's expected…arrow_forwardEffective Cost of Trade Credit The D.J. Masson Corporation needs to raise $800,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 85, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 85th day, and thereby obtain the needed $800,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places. %arrow_forwardEconomics QUESTION 3 An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If the company outsource the shafts, the shafts could be purchased in the first year for $35 per shaft but the price of shaft for the subsequent years will increase by 5% from the previous year. If the company decide to produce the shafts, an investment of $3,000,000 needed for equipment and upgrades. The total annual cost associated with production (e.g. fixed, variable, labor and material cost) is $1,000,000. The annual demand is 40,000 shafts for the next 7 years. The new equipment purchased will have a salvage value of $450,000 at the end of year 7. If the company interest rate is 5%, which of the following statements is correct? O The company should outsource the shafts and the annual equivalent savings is $119,794 O The company should produce the shafts and the annual equivalent savings is $119,794 The company should outsource the shafts since the AEC per unit from…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education