Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2493719 • 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
For each division, compute the return on investment (ROI) in terms of margin and turnover. (Do not round intermediate calculations.)
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.
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:
Explanation / Answer
a. Return on Investment (ROI) = Sales Margin / Capital Turnover
Osaka($) Yokohama($)
= 7 /33.33 = 8/44.44
= 21% = 18%
b. Residual Income =
Osaka($) Yokohama($)
Average Net Operating Assets 1,000,000 4,000,000
Net Operating Income 210,000 720,000
Minimum Required Return of average assets 150,000 600,000
(Operating Assets* Required Rate i.e 15% )
Residual Income 60,000 120,000
c. Yes. This is because the residula income helps to determine the performance of any company or department.