Morrison Motors has total equity of $289,100 and net income of $64,500. The debt-equity ratio is 0.45 and the total asset turnover is 1.6. What is the profit margin?
A) 3.10 percent
B) 5.23 percent
C) 5.67 percent
D) 8.21 percent
E) 9.62 percent

Question

Quizplus · Accepted Answer

To find the profit margin, first calculate total assets using the debt-equity ratio: Total Assets = Equity + Debt = Equity * (1 + Debt-Equity Ratio) = $289,100 * (1 + 0.45) = $419,195. Then, calculate sales using total asset turnover: Sales = Total Assets * Total Asset Turnover = $419,195 * 1.6 = $670,712. Finally, calculate profit margin: Profit Margin = (Net Income / Sales) * 100 = ($64,500 / $670,712) * 100 ≈ 9.62 percent.

Morrison Motors Has Total Equity of $289,100 and Net Income