The Top Hat Division of Blandon's Fine Menswear had the following results last year (in thousands). Management's target rate of return is 12% and the weighted average cost of capital is 9%.
What is the Top Hat Division's sales margin?

Question

The Top Hat Division of Blandon's Fine Menswear had the following results last year (in thousands).  Management's target rate of return is 12% and the weighted average cost of capital is 9%.
What is the Top Hat Division's sales margin?

Quizplus · Accepted Answer

Sales margin = (Net income ÷ Sales) x 100
Net income = Operating income - Interest expense
Operating income = Sales - Cost of goods sold - Operating expenses
From the given data, we can calculate:
Operating income = 700 - 300 - 200 = 200 (in thousands)
Interest expense = 50 (in thousands)
Net income = 200 - 50 = 150 (in thousands)
Sales margin = (150 ÷ 1000) x 100 = 15%
Therefore, the correct answer is C.

The Top Hat Division of Blandon's Fine Menswear Had the Following