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SCENARIO 1 The balance sheet and income statement shown below are for Recycled Paper Inc. All figures in millions except Year-end stock price. BALANCE SHEET

SCENARIO 1

The balance sheet and income statement shown below are for Recycled Paper Inc. All figures in millions except Year-end stock price.

BALANCE SHEET

Cash

$ 140.0

Accounts payable

$ 800.0

Accts. receivable

880.0

Notes payable

600.0

Inventories

1,320.0

Accruals

400.0

Total current assets

$2,340.0

Total current liabilities

$1,800.0

Long-term bonds

1,000.0

Total debt

$2,800.0

Common stock (50,000 shares)

200.0

Retained earnings

1,000.0

Net plant & equip.

1,660.0

Total common equity

$1,200.0

Total assets

$4,000.0

Total liabilities & equity

$4,000.0

INCOME STATEMENT

Net sales

$6,000.0

Operating costs

5,599.8

Depreciation

100.2

EBIT

$ 300.0

Less: Interest

96.0

EBT

$ 204.0

Less: Taxes

81.6

Net income

$ 122.4

OTHER DATA

Shares outstanding

60.00

Common dividends

$42.8

Federal plus state income tax rate

40%

Year-end stock price

$30.60

Use Scenario 1 to answer the question. What is the firm's net profit margin?

A. 6.58%

B. 1.58%

C. 3.74%

D. 2.04%

E. 2.95%

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