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 Division Osaka Sales Net operating income Average operating assets Yokohama $10,500,000 S 35,000,000 S 630,000 S 2,800,000 $ 3,500,000 $ 17,500,000 Required 1. For each division, compute the return on investment (ROl) in terms of margin and turnover. Osaka Yokohama ROl 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. Osaka Yokohama Average operating assets Net operating income Minimum required return on average assets Residual income

Explanation / Answer

1) Statement showing computations Particulars Division Osaka Division Yokohama Average Operating Assets       3,500,000.00                17,500,000.00 Net Operating Income           630,000.00                  2,800,000.00 Return on Investment = NOI/Avg Op Assets 18.00% 16.00% 2) Statement showing computations Particulars Division Osaka Division Yokohama Average Operating Assets       3,500,000.00                17,500,000.00 Net Operating Income           630,000.00                  2,800,000.00 Minimum Required Return = Avg Op Assets*15%           525,000.00                  2,625,000.00 Residual Income = NOI - Min Reqd return           105,000.00                      175,000.00 3) Yes since company has earned better than required

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