Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%.
$$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 3,000,000 \
\hline \text { Operating income } & \$ 500,000 \
\hline \text { Total assets } & \$ 4,500,000 \
\hline \text { Current liabilities } & \$ 300,000 \
\hline
\end{array}$$ What is Apple division's profit margin?
A) 11.11%
B) 16.67%
C) 66.67%
D) 60%

Question

Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%.
$$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 3,000,000 \
\hline \text { Operating income } & \$ 500,000 \
\hline \text { Total assets } & \$ 4,500,000 \
\hline \text { Current liabilities } & \$ 300,000 \
\hline
\end{array}$$ What is Apple division's profit margin?
A) 11.11%
B) 16.67%
C) 66.67%
D) 60%

Quizplus · Accepted Answer

The profit margin is calculated as Operating Income divided by Sales. Therefore, the profit margin is $\frac{\$500,000}{\$3,000,000} = 0.1667$ or 16.67%.

Assume the Apple Division of the Gala Company Had the Following