Standard Media Has a Required Rate of Return of 5

question 61

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: $\begin{array}{lrr}&\text { Audio Division}&\text { Video Division }\\\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \\\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \\\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000\end{array}$ 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%

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Definitions:

Terminate

To bring to an end or conclude something, such as a contract, employment, or process.

Interest

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

Relationship

A relationship is a connection, association, or involvement between people, which can be based on kinship, love, friendship, or professional interactions.

Electronic Contracts

Agreements that are formed, signed, and executed over electronic means, such as through email or an online service.