Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%. The profit margin for Mason is:
A) 7.1%
B) 20%
C) 15.2%
D) 14.1%

Question

Quizplus · Accepted Answer

First, we need to calculate the minimum required profit that Mason Corporation needs to earn on its invested assets. We do this by multiplying the invested assets by the desired minimum rate of return:
$650,000 x 0.15 = $97,500

Next, we can use the formula for profit margin, which is:

Profit Margin = Income from Operations / Sales

Plugging in the values we have, we get:

Profit Margin = $99,000 / $700,000 = 0.1414 (rounded to four decimal places)

Multiplying this by 100 gives us a profit margin of 14.14%. Since the minimum required profit is $97,500 and the actual income from operations is $99,000, which is greater than the minimum required profit, we know that the profit margin is greater than the minimum required rate of return of 15%. Therefore, the best choice is D, 14.1%.

Mason Corporation Had $650,000 in Invested Assets, Sales of $700,000