Refer to Extreme Sports Data Set. 1. Calculate each division's ROI. 2. Top management has extra funds

Question:

Refer to Extreme Sports Data Set.

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?

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:

Refer to Extreme Sports Data Set.
1. Calculate each division's ROI.
2.

Extreme's management has specified a target 16% rate of return. The company's weighted average cost of capital (WACC) is 10%, and its effective tax rate is 37%.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...