Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes is equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 34 percent?-2.43 percent1.56 percent3.33 percent-5.29 percent-6.11 percent

Question

Business

Halle Weiss

11 May, 15:33

Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes is equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 34 percent?-2.43 percent1.56 percent3.33 percent-5.29 percent-6.11 percent

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Answers (1)

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Aubrie · Answer 1

Option (B) is correct.

Explanation:

EBIT = 5.8 percent of sales

= 0.058 * $137,000

= $7,946

Earning before tax (EBT) = EBIT - Interest

= $7,946 - $4,700

= $3,246

Earning after tax or net income = Earning before tax - Tax @34%

= $3,246 - $1,103.64

= $2,142.36

Profit margin ratio = Net income : Net sales

= $2,142.36 : $137,000

= 0.0156 or 1.56%