Question

The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if A- French Government increased the corporate tax rate. B- Cost of goods sold increased relative to sales C- Sales increased relative to expenses. D- Dividends decreased

Answer 1

Answer:

A- French Government increased the corporate tax rate.

Explanation:

Gross profit margin refers to the ratio of gross profit to net sales of a firm.

Gross profit is calculated as net sales minus cost of goods sold.

Net profit margin refers to the ratio of net profit to net sales of a firm.

Net profit is calculated as the profit before tax expense minus corporate tax expense.

Corporate tax expense is the corporate tax rate multiply by the profit before tax expense.

Profit before tax expense is calculated as the gross profit minus operating expenses, sales and distribution expenses and other relevant expenses.

From the explanation above, it can be seen that corporate tax rate is the only option from the question that can affect the net profit margin. For example, an increase in the corporate tax rate will increase the corporate tax expenses and therefore make net profit to fall. This will eventually make net profit margin to decline.

Therefore, the correct option is A- French Government increased the corporate tax rate.