Standard Media Has a Required Rate of Return of 5

question 38

Multiple Choice

Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent. The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division }&\text { Video Division }\\\hline\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \\\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \\\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000\end{array}$ As it relates to investment center evaluation, how much is the profit margin of the Video Division?

• A) 11.4%
• B) 71.43%
• C) 60.00%
• D) 16.00%