The Mortenson Company has the following account balances: Cost of Goods Sold 120,000.55 Interest Revenue ...

The Mortenson Company has the following account balances:
Cost of Goods Sold		120,000.55
Interest Revenue		5,000.45
Loss on Asset Disposal		12,000.11
Sales Revenue Refund		9,000.54
Operating Expenses		46,000.87
Sales Revenue		200,000.59

In Mortenson's multiple-step income statement, what will be the value of the gross profit/margin?

John won the lottery that will pay him $100,000.00 at the end of each of the next 20 years.
Assuming an appropriate interest rate is 8% compounded annually, how much is this
total lottery winnings worth today?

Expert Solution

Gross Profit is calculated by deducting Cost of Goods Sold ($120000.55) from Net Sales. Formula for calculating Net Sales = Sales Revenue - Sales Revenue Refund
=> $200000.59 - $9000.54
=> $191000.05 (Net Sales)

Hence, Gross Profit = Net sales - Cost of goods sold
= $191000.05 - $120000.55
= 70999.5
And Gross Profit margin = (Gross Profit / Net Sales)
= ($70999.5 / $191000.05) = 37.1725%

In order to calculate total lottery winnings worth today, we can use Formula of Present value of Annuity which is as follows:
PV = A [ {1- (1+i)^-n} / i]
where, PV is Present Total value of lottery winnings worth today
A is Annuity or in this case - $100000 lottery paid at the end of each year
i is the annual compound interest rate which is 8%
n is the number of years for which lottery will be paid which is 20 years

Now applying the above formula using the given information, we see that
PV = $100000 [ {1- (1+ 0.08)^-20} / 0.08]
Hence, PV of Total Lottery winnings worth today is equal to $ 1250000

ekkarill92 answered 1 year ago

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