Question

Refer to the Racer Sports Data Set.
Racer 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:
Racer’s management has specified a target 15% rate of return. The company’s weighted average cost of capital (WACC) is 12%, and its effective tax rate is 35%.
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?


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  • CreatedApril 30, 2015
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