Bed Bug Inn has annual sales of $137,000.Earnings before interest and taxes is equal to 5.8 percent of sales.For the period,the firm paid $4,700 in interest.What is the profit margin if the tax rate is 34 percent?
A)–2.43 percent
B)1.56 percent
C)3.33 percent
D)–5.29 percent
E)–6.11 percent

Question

Bed Bug Inn has annual sales of $137,000.Earnings before interest and taxes is equal to 5.8 percent of sales.For the period,the firm paid $4,700 in interest.What is the profit margin if the tax rate is 34 percent?
A)&#8211;2.43 percent
B)1.56 percent
C)3.33 percent
D)&#8211;5.29 percent
E)&#8211;6.11 percent

Quizplus · Accepted Answer

First, calculate EBIT: $137,000 * 5.8% = $7,946. Then, subtract interest: $7,946 - $4,700 = $3,246. Calculate taxes: $3,246 * 34% = $1,103.64. Subtract taxes from pre-tax profit: $3,246 - $1,103.64 = $2,142.36. Finally, calculate profit margin: ($2,142.36 / $137,000) * 100 = 1.56%.

Bed Bug Inn Has Annual Sales of $137,000