Maizy Enterprises has a target rate of return of 11%, an ROI of 90%, and capital turnover of 4.5. The sales margin for Maizy Enterprises may be closest to
A)405%.
B)20%.
C)2%.
D)50%.

Question

Quizplus · Accepted Answer

Sales Margin = ROI x Capital Turnover
Sales Margin = 90% x 4.5
Sales Margin = 405%

However, the target rate of return is only 11%, so in order to achieve that, the Sales Margin needs to be adjusted.

Sales Margin = Target Rate of Return + (Target Rate of Return x Capital Turnover)
Sales Margin = 11% + (11% x 4.5)
Sales Margin = 59.5%

Out of the given choices, the closest sales margin is 50%. Therefore, the answer is B.

Maizy Enterprises Has a Target Rate of Return of 11