Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2460488 • 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 Osaka Sales Net operating income Average operating assets $10,600,000 $36,000,000 $742,000 3,240,000 S 2,650,000 $18,000,000 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).) 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 16%. Compute the residual income for each division. Osaka Yokohama Average operating assets Net operating income Minimum required return on average assets Residual income 3. Is Yokohama's greater amount of residual income an indication that it is better managed? Yes NoExplanation / Answer
1)
Osaka Division
ROI = ($742,000 / 10,600,000) * ($10,600,000 / 2,650,000) * 100
ROI = 0.07 * 4* 100
ROI = 28%
Yokohama Division
ROI = ($3,240,000 / 36,000,000) * (36,000,000 / 18,000,000) * 100
ROI = 0.09 * 2 * 100
ROI = 18%
2)
Osaka Division
Minimum required return = (Average Operating Assets * minimum required rate)
= $2,650,000 * 16% = $424,000
Residual Income = Net operating Income - Minimum Required return
= $742,000 - $424,000 = $318,000
Yokohama Division
Minimum required return = $18,000,000*16% = $2,880,000
Residual Income = $3,240,000 - $2,880,000 = $360,000
3) Yes