Gold-Jerry Gold Corporation is a mid-tier gold producer listed on the

Gold-Jerry Gold Corporation is a mid-tier gold producer listed on the New York Stock Exchange. It is currently the end of Year 1, and the fiscal situation in the U.S and Europe is dire.

Kenny Bania, an analyst at Gold-Jerry, forecasts that gold prices will rise during Year 2, since gold is regarded as a safe investment haven during periods of economic uncertainty. Bania is forecasting that Gold-Jerry’s revenues will increase by 25% in Year 2. Use the data in the table to estimate Gold-Jerry’s operating profit margin (EBIT/Sales) for Year 2.

Gold-Jerry Gold Corp ($000s)
Year 1 (Actual) Year 2 (Forecast)
Sales $12,000 $15,000
EBIT $500
Operating Profit Margin 4.17%
Operating Leverage 1.65

A) 4.17%
B) 12.56%
C) 4.71%
D) 41.25%
E) 5.21%

ANSWER

C