.\'ll AT&T; 8:40 PM Expert Q&A; 3. Kent Countwell of Startupanddie, Inc. is tryi
ID: 2783487 • Letter: #
Question
.'ll AT&T; 8:40 PM Expert Q&A; 3. Kent Countwell of Startupanddie, Inc. is trying to understand the three kinds of profit on the income statement. Startup's gross profit for last month was S100,000, their operating profit was $25,000, and their net profit was $0. a. If Startup sells its products with a unit gross margin of 40%, what were their revenues and cost of goods sold last month? b. If Startupanddie increases its marketing expenses by S50,000, but their revenues and other expenses don't change, what will their three profit numbers be? i Gross profit = 11, Operating profit-iii. Net profit = c. Tricky question: If Startup receives an equity investment that it uses to get rid of its debt, and the revenue and other expenses stay the same as in the first part of this problem, what will their net profit be? Assume that their tax rate is 35%. 0 0 solutionsExplanation / Answer
a)Given Gross margin=40% and Gross profit=100000
Gross profit/sales= Gross margin
sales=100000/40%=250000
Cost of goods sold=sales- Gross profit
=250000-100000
=150000
b)Gross profit=100000
Operating profit= last year operating profit-increase in marketing exp
=25000-50000
=-25000
Net profit=0-25000
=-25000
c)In first
(operating profit-interest)*(1-tax)=net profit
interest =25000 so that net profit is 0
Net profit here=(25000-0)*(1-35%)
=16250
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