Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2528162 • 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 Yokohama $ 9,600,000 $ 26,000,000 $ 672,000 $ 2,340,000 $ 3,200,000 $ 13,000,000 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 (ie., 0.12 should be entered as 12).) Osaka Yokohama ROIExplanation / Answer
1) Return on Investment
OSAKA
Return on Investment (ROI) can be calculated using the DuPont formula. It uses the net profit margin and total asset turnover in the calculation of ROI. These measures indicate how effectively a company uses each dollar that is invested in assets to generate profits. It is fairly easy to learn how to calculate each of these components and the overall ROI.
Divide the net profit after taxes number by the revenue number and multiply by 100 to calculate the net profit margin. Net profit margin indicates how many dollars in profit are made per each dollar that is produced in revenue.
= 672000/9600000 = 0.07
Locate the data for "total assets" in the balance sheet. Divide the revenue number by the total assets number and multiply by 100 to calculate asset turnover. Total asset turnover indicates the amount of sales that are generated for every dollar invested in assets.
=9600000/3200000 = 3
Multiply net profit margin by the total asset turnover to calculate return on investment. = 0.07*3 = 0.21 = 21%
YOKOHAMA
Divide the net profit after taxes number by the revenue number and multiply by 100 to calculate the net profit margin. Net profit margin indicates how many dollars in profit are made per each dollar that is produced in revenue
=2340000/26000000 = 0.09
Locate the data for "total assets" in the balance sheet. Divide the revenue number by the total assets number and multiply by 100 to calculate asset turnover. Total asset turnover indicates the amount of sales that are generated for every dollar invested in assets
= 26000000/13000000 = 2
Multiply net profit margin by the total asset turnover to calculate return on investment. = 0.09*2 = 0.18 = 18%
2) Residual income = Operating income - (cost of capital * avg operating assets)
osaka: = 672000 - (16%*3200000)
= 672000-512000
= $ 160000
Yokohama = 2340000 - (16% * 13000000)
= 2340000 - 2080000
= $ 260000
3) Yes