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What is the gross development profit margin (rounded to the nearest percent) for a going in cap...

Question:

What is the gross development profit margin (rounded to the nearest percent) for a going in cap rate of 10 and a selling cap rate of 7 (round to the nearest whole percent; e.g.,18.18% is rounded to 18%)?

a. 25%

b. 33%

c. 40%

d. 20%

e. 30%

f. 70%

g. None of the above

Profit Margin:

The profit margin is the percentage of the total sales revenue that is profit for the company. The profit margin is calculated by dividing operating profit from total revenue. Higher the margin better it is for the company.

Answer and Explanation:

Details:

Cap rate = 10%

Selling cap rate = 7%

Evaluated:

{eq}Profit \ margin \ = \ \dfrac{Cap \ rate \ - \ Selling \ cap \ rate}{Cap \ rate} \\ Profit \ margin \ = \ \dfrac{10\% \ - \ 7\%}{10\%} \\ Profit \ margin \ = \ \dfrac{0.10 \ - \ 0.07}{0.10} \\ Profit \ margin \ = \ 0.30 \ or \ 30\% {/eq}

Hence, the correct option is e.


Learn more about this topic:

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How to Calculate Gross Profit Margin: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 17
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