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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Using ROI, RI, and EVA to evaluate investment centers
Extreme Sports Company makes snowboards, downhill skis, cross-country skis, skateboards, surfboards, and in-line skates. The company has found it beneficial to split operations into two divisions based on the climate required for the sport: Snow sports and Non-snow sports. The following divisional information is available for the past year:
| Â |
Sales |
Operating Income |
Average Total Assets |
Current Liabilities |
ROI |
|
Snow sports |
$ 5,500,000 |
$ 935,000 |
$ 4,500,000 |
$ 420,000 |
20.8% |
|
Non-snow sports |
8,400,000 |
1,428,000 |
6,700,000 |
695,000 |
21.3% |
Extreme’s management has specified a 16% target rate of return. The company’s weighted average cost of capital (WACC) is 10% and its effective tax rate is 38%.
Requirement
1. Calculate each division’s profit margin. Interpret your results.
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