A firm's profit margin when ignoring the effects of financing is 20% with an EBIT of $1.5 million and sales of $5 million. How much did the firm pay in taxes?
A) $50,000
B) $300,000
C) $350,000
D)$500,000

Question

Quizplus · Accepted Answer

Without any interest expense, the profit margin can be computed as:Profit margin = (EBIT - taxes)/sales.20 = ($1,500,000 - taxes)/$5,000,000Taxes = $500,000

A Firm's Profit Margin When Ignoring the Effects of Financing