Question

The balance sheet and income statement shown below are for New York, Inc, and the data are to be used for the following questions. Note that the firm has no amortization charges, it does not lease any assets, and none of its debt must be retired during the next 5 years (notes payable will be rolled over). Assume a 360-day year.

            BALANCE SHEET (millions of dollars)

Cash	$ 240.0		Accounts payable	$ 1000.0
Accts. Receivable	800.0		Notes payable	600.0
Inventories	1,300.0		Accruals	400.0
Total current assets	$2,340.0		Total current liabilities	$2,000.0
			Long-term bonds	800.0
			Total debt	$2,800.0
			Common stock	200.0
			Retained earnings	9,00.0
Net plant & equip.	1,560.0		Total common equity	$1,100.0
Total assets	$3,900.0		Total liabilities & equity	$3,900.0

            INCOME STATEMENT (millions of dollars)

Net sales	$ 4,750.0
Operating costs	4000.0
Depreciation	150
EBIT	$    600.0
Less: Interest	100.0
EBT	$    500.0
Less: Taxes
Net income	$    300.0

            OTHER DATA

Shares outstanding (millions)	100.00
Common dividends (millions)	$50
Federal plus state income tax rate	40%
Year-end stock price	$25

What is the firm's profit margin?

		6.32%
		9.28%
		7.19%
		5.25%
		8.00%

Answer 1

We know the formula for Profit margin=Net income/Sales (or Revenue)=300/4750=6.32%