The Pasta Division of Whole Grain Corporation had sales of $5,500,000 and operating income of $1,375,000 last year. The total assets of the Pasta Division were $2,750,000, while current liabilities were $340,000. Whole Grain Corporation's target rate of return is 18%, while its weighted average cost of capital is 15%. The effective tax rate for the company is 40%. What is the Pasta Division's sales margin?
A)33.00%
B)25.00%
C)6)18%
D)50.00%

Question

Quizplus · Accepted Answer

Sales Margin = Operating Income / Sales
Sales = $5,500,000
Operating Income = $1,375,000
Sales Margin = $1,375,000 / $5,500,000 = 0.25 or 25%
Therefore, the correct choice is B (25.00%).

The Pasta Division of Whole Grain Corporation Had Sales of $5,500,000