An all-equity firm reports a net profit margin of 10% on sales of $3 million. if the tax rate is 40%, what is the pretax profit

a. $100,000

b. $300,000

c. $500,000

d. $800,000

The net profit margin of 10% implies a net profit of 3,000,000 x 10% = 300,000.

The pretax profit is profit before tax.

If the tax rate is 40%, we can take 300,000 / (1-0.4) = 500,000 (C)

We can confirm by multiplying 500,000 * 60% = 300,000.