Reference no: EM132466048

A project currently generates sales of $13 million, variable costs equal 50% of sales, and fixed costs are $2.6 million. The firm's tax rate is 40%. Assume all sales and expenses are cash items.

a. What are the effects on cash flow, if sales increase from $13 million to $14.3 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)

b. What are the effects on cash flow, if variable costs increase to 55% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.)

The following estimates have been prepared for a project:

Fixed costs: $5,400

Depreciation: $3,600

Sales price per unit: $3

Accounting break-even: 50,000 units

What must be the variable cost per unit? (Round your answer to 2 decimal places.)

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 $217,000. The machinery costs $2.6 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%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)