Last year, Lenny's Lemonade had $3,500 in sales, and cost of goods sold was $2,000. Depreciation expenses totaled $500, and interest expense was $700. If the tax rate is 25%, what is the net profit margin for Lenny's Lemonade?
A)6.43%
B)20.70%
C)2.14%
D)22.86%

Question

Quizplus · Accepted Answer

Net profit margin is calculated as (Net Income / Sales) * 100. Here, Net Income = Sales - Cost of Goods Sold - Depreciation Expense - Interest Expense - Taxes. So, Net Income = $3,500 - $2,000 - $500 - $700 - Taxes. Taxes = 25% of (Sales - Cost of Goods Sold - Depreciation Expense - Interest Expense) = 25% of ($3,500 - $2,000 - $500 - $700) = 25% of $300 = $75. Thus, Net Income = $3,500 - $2,000 - $500 - $700 - $75 = $225. Net profit margin = ($225 / $3,500) * 100 = 6.43%.

Last Year, Lenny's Lemonade Had $3,500 in Sales, and Cost