Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2483894 • 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 Yokohama
Sales $ 10,800,000 $ 38,000,000
Net operating income $ 648,000 $ 3,040,000
Average operating assets $ 3,600,000 $ 19,000,000
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).)
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.
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 No
Explanation / Answer
1) Osaka yokohama Sales 10800000 38000000 Net operating Income 648000 3040000 Average operating assets 3600000 19000000 ROI ( Turnover ) 300 200 ROI ( Margin ) 18 16 ROI (Turnover) = Sales / Average operating asset * 100 ROI ( Margin) = net operating income / average operating assets 2) Osaka yokohama Net operating Income 648000 3040000 Average operating assets 3600000 19000000 minimum required rate of return on average assets 15% 15% residual income 540000 2850000 3) Yes, the fact that yokohama has a higher residual income , it means that it is better managed because higher residual income means that yokohama has surplus funds to invest in growth related activities