Use the Following Table, Which Provides Historical Data for SnacksCo

Use the following table, which provides historical data for SnacksCo, a manufacturer of snack foods, to answer the next question. Assume an operating tax rate of 30 percent and a cost of capital of 9 percent.
$\begin{array}{lcc}\text { Income statement } & \text { Year 1 } & \text { Year 2 } \\\hline \text { Revenues } & 540.0 & 555.0 \\\text { Cost of sales } & (350.0) & (360.5) \\\begin{array} { l } \text { Selling, general, and}\\ \text {administrative }\\\end{array}&(50.0) &(50.5) \\\text { Depreciation } & (10.0) & (10.5) \\ \text { EBIT } & 130.0 & 133.5 \\\text { Interest expense } & (7.5) & (7.5) \\\text { Gain/(loss) on sale of assets } & - & (30.0) \\\text{ Earnings before taxes } & 122.5 & 96.0 \\\text { Taxes } & (24.8) & (21.5) \\\hline \text { Net income } & 97.7 & 74.5\\\end{array}$
$\begin{array}{lcc}\text { Balance sheet } & \text { Year 1 } & \text { Year 2 } \\\hline\text { Operating cash } &10.6 & 15.0 \\ \begin{array}{l}\text { Excess cash and marketable } \\\text { securities }\end{array} & 102.8 & 100.0 \\\text { Accounts receivable } & 90.0 & 94.5 \\\text { Inventory } & 150.0 & 157.5 \\\text { Current assets } & 353.4 & 367.0\\\text { Property, plant, and equipment } & 206.7 & 219.8 \\\text { Equity investments } & 180.0 & 180.0 \\\hline \text { Total assets } & 740.1 & 766.8\\\text { Accounts payable } & 116.6 & 119.6 \\\text { Short term dobt } & 45.0 & 45.0 \\\text { Accrued expenses } & 90.1 & 89.0 \\\text { Current liabilities } & 251.7 & 253.7 \\& & \\\text { Long-term debt } & 68.4 & 80.6 \\\text { Camman stack } & 120.0 & 120.0\\\text { Retained earnings } & 300.0 & 312.5 \\ \text { Total llabilities and equity } & 740.1 & 766.8\end{array}$
-What is SnackCo's operating margin in year 2?

A) 13.4 percent.
B) 16.8 percent.
C) 24.0 percent.
D) 35.3 percent.

Correct Answer:

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