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Category > Business & Finance Posted 30 Apr 2017 My Price 12.00

Using ROI

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:

 

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.

Answers

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Status NEW Posted 30 Apr 2017 01:04 PM My Price 12.00

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