Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2531884 • 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 $10,400,000 $34,000,000 $ 520,000 $ 2,380,000 $ 2,600,000 $ 17,000,000 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 12%. 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 0Explanation / Answer
1. For each division , compute the return on investment (ROI) in terms of margin and turnover
Margin
Turnover
ROI
Osaka
5%
4 Times
20%
Yokohama
7%
2 Times
14%
Return on investment (ROI) in terms of margin and turnover
= (Net operating Income/Sales) x (Sales/ Average operating assets)
OSAKA
= ($5,20,000 / $1,04,00,000) x ($1,04,00,000 / $26,00,000)
= 5% x 4
= 20%
YOKOHAMA
= ($23,80,000/$3,40,00,000) x ($3,40,00,000/$1,70,00,000)
= 7% x 2
= 14%
2.Computation of Residual Income
OSAKA
YOKOHAMA
Average operating assets
$26,00,000
$1,70,00,000
Net Operating Income
$5,20,000
$23,80,000
Minimum required return on average assets at 15%
$3,12,000
$20,40,000
Residual Income
$2,08,000
$3,40,000
3.Yes
Margin
Turnover
ROI
Osaka
5%
4 Times
20%
Yokohama
7%
2 Times
14%