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?

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?

Quizplus · Accepted Answer

Profit margin = Net income / Sales= 500,000 / 3,800,000= 0.1316= 13% (rounded to the nearest whole percentage)

The Following Information Is Reported for the Current Year for North