Question

assuming the hiking shoes division of the all about shoes corporation had the following results last year managements target rate of return 10% and the weighted average cost of capital is 30%. its effective rac rate is 25% what is the divisions return on investment roi

Answer 1

Answer:

116.67%

Explanation:

Note: Complete question is attached as picture below

Capital Turnover = Sales / Total Assets

Capital Turnover = $7,000,000 / $1,500,000

Capital Turnover = 4.67

Sales Margin = Operating Income / Sales

Sales Margin = $1,750,000/$7,000,000

Sales Margin = 0.25

Sales Margin = 25%

Division Rate of Investment = Capital Turnover * Sales Margin

Division Rate of Investment = 4.67 * 25%

Division Rate of Investment = 116.67%