Dimaggio Sports Equipment, Inc. is considering a switch to level production

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Dimaggio Sports Equipment, Inc. is considering a switch to level production. Cost efficiencies would occur under level production, and after-tax costs would decline by $35,000, but inventory would increase by $400,000. Dimaggio would have to finance the extra inventory at a cost of 10.5 percent.

a. Should the company go ahead and switch to level production?
b. How low would interest rates need to fall before level production would be feasible?

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