Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2459766 • Letter: M
Question
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Yokohama $ 9,700,000 $ 27,000,000 $ 776,000 $ 2,700,000 $ 2,425,000 $ 13,500,000 Osaka Sales Net operating income Average operating assets Required 1. For each division, compute the return on investment (ROI) in terms of margin and turnover Osaka Yokohama ROI 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 17%. Compute the residual income for each division Osaka Yokohama Average operating assets Net operating income Minimum required return on average assets Residual incomeExplanation / Answer
Osaka
Yokohama
ROI
32%
20%
Working:
ROI = margin * turnover
= 776,000/ 9,700,000 * 9,700,000/2,425,000 = 32%
ROI = 2,700,000/27,000,000 * 27,000,000/13,500,000 = 20%
(2)
Osaka
Yokohama
Average operating assets
2,425,000
13,500,000
Net operating income
776,000
2,700,000
Minimum required return on average assets
412,250
2,295,000
Residual income
363,750
$405,000
(3) no
Osaka
Yokohama
ROI
32%
20%