Final answer:
The Net Profit Margin stays the same when both sales and expenses increase by 10% because they are proportional to each other, resulting in no change in the ratio of net income to sales. So the correct answer is option C.
Step-by-step explanation:
The question asks about the Net Profit Margin (NPM) when both sales and expenses increase by 10%. If sales and expenses increase by the same percentage, the net profit margin would remain unchanged because they are proportional to each other. Therefore, the correct answer is: C. Stays the same; Sales and expenses are proportional.
Net Profit Margin is calculated by dividing net income by sales and then multiplying by 100 to get a percentage. When both sales and expenses increase by the same percentage, the net income (sales minus expenses) maintains a similar ratio to sales, and hence the Net Profit Margin stays the same.
For example, if a company's sales increase by 10% while its expenses also increase by 10%, the higher sales can generate more revenue, which might compensate for the increased expenses. This can lead to a higher NPM, indicating improved profitability.