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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

Respuesta :

Answer:

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%

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