Refer to the Racer Sports Data Set. Racer Sports Company makes snowboards, downhill skis, cross-country skis, skateboards,

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?

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...