A silver mine can yield 18,000 ounces of silver at a variable cost of $38 per ounce. The fixed costs of operating the mine are $45,000 per year. In half the years, silver can be sold for $54 per ounce; in the other years, silver can be sold for only $27 per ounce. Ignore taxes.
a. What is the average cash flow you will receive from the mine if it is always kept in operation and the silver always is sold in the year it is mined? (Do not round intermediate calculations.)
b. Now suppose you can costlessly shut down the mine in years of low silver prices. What happens to the average cash flow from the mine? (Do not round intermediate calculations.)

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $140. The materials cost for a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $210,000. The machinery costs $1.8 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 30%, a 10-year project life, and a discount rate of 14%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

A project currently generates sales of $12 million, variable costs equal 40% of sales, and fixed costs are $2.4 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 $12 million to $13.2 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 50% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.)

A silver mine can yield 18,000 ounces of silver at a variable cost...