Reference no: EM132540988

Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondepreciation fixed costs are $2,400 per year, and variable costs are $35 per unit. The initial investment of $2,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 12%.

(For all the requirements, do not round intermediate calculations. Round your answer to the nearest whole number.)

a. What is the accounting break-even level of sales if the firm pays no taxes?

b. What is the NPV break-even level of sales if the firm pays no taxes?

c. What is the accounting break-even level of sales if the firm's tax rate is 40%?

d. What is the NPV break-even level of sales if the firm's tax rate is 40%?

2)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 $208,000. The machinery costs $1.7 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.)

3)In a slow year, Deutsche Burgers will produce 4 million hamburgers at a total cost of $4.8 million. In a good year, it can produce 5.2 million hamburgers at a total cost of $5.8 million.

a. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

b. What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What is the average cost per burger when the firm produces 3 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. What is the average cost per burger when the firm produces 4 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e. Why is the average cost lower when more burgers are produced?