The following information is reported for the current year for North Atlantic Division of XT Enterprises: $$\begin{array} { l r }
\text { Sales } & \$ 3,800,000 \
\text { Interest expense } & \$ 250,000 \
\text { Net income } & \$ 500,000 \
\text { Total assets } & \$ 5,000,000 \
\text { Noninterest-bearing current liabilities } & \$ 400,000 \
\text { Cost of capital } & 8 \% \
\text { Required rate of return } & 14 \% \
\text { Tax rate } & 30 \%
\end{array}$$ As it relates to investment center evaluation, how much is the division's profit margin, rounded to the nearest whole percentage?
A)18%
B)13%
C)10%
D)11%

Question

The following information is reported for the current year for North Atlantic Division of XT Enterprises: $$\begin{array} { l r } 
\text { Sales } & \$ 3,800,000 \
\text { Interest expense } & \$ 250,000 \
\text { Net income } & \$ 500,000 \
\text { Total assets } & \$ 5,000,000 \
\text { Noninterest-bearing current liabilities } & \$ 400,000 \
\text { Cost of capital } & 8 \% \
\text { Required rate of return } & 14 \% \
\text { Tax rate } & 30 \%
\end{array}$$ As it relates to investment center evaluation, how much is the division's profit margin, rounded to the nearest whole percentage?
A)18%
B)13%
C)10%
D)11%

Quizplus · Accepted Answer

Profit margin = Net income / Sales = $500,000 / $3,800,000 = 13.16% or 13% (rounded to the nearest whole percentage)

The Following Information Is Reported for the Current Year for North