Use the Table for the Question(s) Below -Consider the Above Income Statement for Xenon Manufacturing

question 37

Multiple Choice

Use the table for the question(s) below
$\begin{array}{l}\text { Income Statement for Xenon Manufacturing: }\\\begin{array} { l r r } & 2011 & 2012 \\\text { Total sales } & 202 & 212 \\\text { Cost of sales } & - 148 & - 172 \\\hline \text { Gross Profit } & 54 & 40 \\\text { Selling, general, } & & \\\text { and administrative expenses } & - 22 & - 20 \\\text { Research and development } & - 8 & - 7 \\\text { Depreciation and amortisation } & - 4 & - 3 \\\text { Other income } & 4 & 6 \\\hline \text { Earnings before interest } & & \\\text { and taxes (EBIT) } & 24 & 16 \\\text { Interest income (expense) } & - 7 & - 4 \\\hline \text { Pretax income } & 14 & 12 \\\text { Taxes } & - 4 & - 3 \\\hline \text { Net Income } & 10 & 9\end{array}\end{array}$
-Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2011 and 2012. What does the change in the gross margin between these two years imply about the company?

• A) The efficiency of Xenon Manufacturing has significantly risen between 2011 and 2012.
• B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2011 and 2012.
• C) The leverage of Xenon Manufacturing fell slightly between 2011 and 2012.
• D) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2011 and 2012.

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Definitions:

Dividend Reinvestment Plans

Programs that allow investors to automatically reinvest their cash dividends into additional shares or fractional shares of the underlying stock.

Open Market

A freely competitive market where buyers and sellers can engage in transactions with minimal government intervention.

Debt Ratio

A financial ratio that measures the extent of a company's or individual's leverage in relation to the assets they own.

Transaction Costs

Expenses incurred when buying or selling securities, including commissions and the bid-ask spread.