Outdoor Sports Company makes snowboards, downhill skis, crosscountry skis, skateboards, surfboards, and inIine skates. The company has found It beneficial to split operations into two
Outdoor Sports Company makes snowboards, downhill skis, crosscountry skis, skateboards, surfboards, and inIine skates. The company has found It beneficial to split operations into two divisions based on the climate required for the sport: Snow Sports and NonSnow Sports. The following divisional information is available for the past year: a (Click the icon to view the divisional information.) 1. Calculate each division's ROI. 2. Top management has extra funds to invest. Which division will most likely receive those funds? Why? 3. Can you explain why one division's ROI is higher? How could management gain more insight? 1. Calculate each division's ROI. Enter the formula, and then calculate each division's ROI. (Enter the ROI as a percent rounded to one decimal place. X.X%.) Operating income / Total assets = ROI Snowsports :l I E = :l% Divisional information Operating Total Current Sales Income Assets Liabilities Snow Sports ........ $ 5,500,000 $ 946,000 $ 4,300,000 $ 420,000 Non-Snow Sports . . . . 8,300,000 808,500 3,300,000 6?0,000 Outdoor Sports management has specied a target 19% rate of return. The company's weighted average cost of capital (WACC) is 10%, and its effective tax rate is 33%
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