Figure 1
The following results for the year are for the Clark Division of First Enterprises:
Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent.
-Refer to Figure 1. Profit margin for the Clark Division is

A) 26.7%
B) 33.3%
C) 40.0%
D) 60.0%

Question

Figure 1
The following results for the year are for the Clark Division of First Enterprises:
Clark's average operating assets are £300,000. Clark's minimum required rate of return is 15 percent.
-Refer to Figure 1. Profit margin for the Clark Division is

A) 26.7% 
B) 33.3% 
C) 40.0% 
D) 60.0%

Quizplus · Accepted Answer

The formula for profit margin is net income divided by sales. 
Since the problem does not give us the sales figure, we need to use the components of the ROI formula to calculate it. 
ROI (return on investment) is calculated as net income divided by average operating assets. 
We know:
ROI = 15% (minimum required rate of return) and Average operating assets = £300,000. 
Therefore, Net income = ROI x Average operating assets = 0.15 x 300,000 = £45,000. 
To calculate the profit margin, we need to know the sales figure. One way to find it is to use the following formula:
Profit margin = Net income/Sales
Sales = Net income/Profit margin = £45,000/0.4 = £112,500
Therefore, the profit margin for the Clark Division is 40%, which is Choice C.

Figure 1 The Following Results for the Year Are for the Clark