Q1) Company had balance sheet and income statement information for 2003 which are as follows:
| Balance Sheet |
| Cash |
$20 |
| A/R |
1,000 |
| Inventories |
5,000 |
| Total C.A. |
$6,020 |
Debt |
4,000 |
| Net F.A. |
2,980 |
Equity |
5,000 |
| Total Assets |
$9,000 |
Total Claims |
$9,000 |
| Income Statement |
| Sales |
$10,000 |
| Cost of Goods Sold |
$9,200 |
| EBIT |
$800 |
| Interest (10%) |
$400 |
| EBT |
$400 |
| Taxes (40%) |
$160 |
| Net Income |
$240 |
Industry average inventory turnover is 5. You think you can change the inventory control system so as to cause your turnover to equal industry average, and this change is expected to have no effect on either sales or cost of goods sold. Cash generated from decreasing inventories will be used to purchase tax-exempt securities which have a? percent rate of return. Determine the profit margin be after the change in inventories reflected in income statement?
a. 2.1%
b. 2.4%
c. 4.5%
d. 5.3%
e. 6.7%