Assume the Cell Phone Division of the First Electronics Corporation had the following results last year (in thousands).Management's target rate of return is 10% and the weighted average cost of capital is 7%.Its effective tax rate is 30%. $$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 6,000,000 \
\hline \text { Operating income } & 900,000 \
\hline \text { Total assets } & 3,000,000 \
\hline \text { Current liabilities } & 750,000 \
\hline
\end{array}$$
- What is the division's sales margin?
A)200.00%
B)15.00%
C)25.00%
D)30.00%

Question

Assume the Cell Phone Division of the First Electronics Corporation had the following results last year (in thousands).Management's target rate of return is 10% and the weighted average cost of capital is 7%.Its effective tax rate is 30%. $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 6,000,000 \
\hline \text { Operating income } & 900,000 \
\hline \text { Total assets } & 3,000,000 \
\hline \text { Current liabilities } & 750,000 \
\hline
\end{array}$$
- What is the division's sales margin?
A)200.00%
B)15.00%
C)25.00%
D)30.00%

Quizplus · Accepted Answer

Sales margin is calculated as operating income divided by sales. In this case, operating income is $900,000 and sales are $6,000,000. Therefore, the sales margin is $900,000 / $6,000,000 = 15%.