Question

The following information is available for our company for the current year:

• operating income, $75,000;
• average total assets, $500,000;
• net sales, $750,000; and
• required rate of return, 12%.

Calculate the profit margin to two decimal places.

A) 6.67%

B) 10.00%

C) 15.00%

D) 16.67%

The following information is available for our company for the current year:

• operating income, $75,000;
• average total assets, $500,000;
• net sales, $750,000; and
• required rate of return, 12%.

Calculate the asset turnover to two decimal places.

A) 1.25 times

B) 1.50 times

C) 6.67 times

D) 8.75 times

The following information is available for our company for the current year:

• operating income, $45,000;
• average total assets, $400,000;
• net sales, $900,000; and
• required rate of return, 12%.

Calculate the minimum acceptable operating income.

A) ($3000)

B) $3000

C) $45,000

D) $48,000

Answer 1

Answer 1

OPTION B i.e. 10%

Explanation:

Profit Margin = Net operating Income / Sales *100

Profit Margin = 75,000 / 750,000 * 100

Profit Margin = 10%

Clearly, option b is correct and other options are incorrect.

Answer 2

OPTION B i.e. 1.50 times

Explanation:

Assets Turnover = Sales / Average assets

Assets Turnover = 750,000 / 500,000

Assets Turnover = 1.50 times

Clearly, option b is correct and other options are incorrect.

Answer 3

OPTION D i.e. $ 48,000

Explanation:

Minimum acceptable operating income = Total assets * Rate of return

Minimum acceptable operating income = 400,000 * 12%

Minimum acceptable operating income = $ 48,000

Clearly, option d is correct and other options are incorrect.

In case of any doubt or clarification, you're welcome to come back via comments.