Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak

Question

Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. (Do not round intermediate calculations. Enter your answers as a percent (I.e., 0.12 should be entered as 12).) 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division. 3. Is Yokohama?s greater amount of residual income an indication that it is better managed? Yes No

Explanation / Answer

Statement showing computations Particulars Osaka Div Yokohama Div Sales           10,000,000.00                 30,000,000.00 Net Operating Income                 700,000.00                    2,700,000.00 Average Operating Assets              2,000,000.00                 15,000,000.00 Return on Invt = NOI/Sales *100 7.00% 9.00% Note = ROI formula is = Net Operating income/Average Operating Assets But in Question it is given in ters of Margin and Turnover Net Operating Income                 700,000.00                    2,700,000.00 Minimum Rate of return 15% 15% Average Operating Assets              2,000,000.00                 15,000,000.00 Minimum return Reqd = Rate*Assets                 300,000.00                    2,250,000.00 Residual income = NOI - min return                 400,000.00                       450,000.00 Yes

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