Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2560514 • 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 Osaka Sales Net operating income Average operating assets $10,500,000 S35,000,000 S 630,000 S 2,800,000 S 3,500,000 S17,500,000 Required: 1. For each division, compute the return on investment (ROl) in terms of margin and turnover ROI 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. aka kohama Average operating assets Net operating income Minimum required return on average Residual income 3. Is Yokohama's greater amount of residual income an indication that it is better managed? O Yes O NoExplanation / Answer
Answer:-1)-Retun on Investment:-
=(Net operating income/Sales)*(Sales*Average operating assets)
Osaka Division =($630000/$10500000)*($10500000*$3500000)
=6%*3 =18%
Yokohama Division=($2800000/$35000000) *($35000000/$17500000)
=8%*2 =16%
2)-
Where:-
Residual income =Net opreating income-Minimum return required on average opreating assets
3)- 3)-No, Yokohama’s greater amount of residual income it does not indicate that it is better managed. Yokohama division is larger than the Osaka Division and for this reason one would expect that it would have a greater amount of residual income. Residual income can’t to be used to compare the performance of divisions of different sizes. In terms of ROI Osaka have (ie- 18%) greater than Yokohama (ie-16%) hence the Yokohama division does not appear to be well managed as the Osaka Division
Meiji Isetan Residual Income Division Osaka Yokohama Average Opreating Assets $ (a) 3500000 17500000 Net opreating income $ (b) 630000 2800000 Minimum required return on average opreating assets (c)= (15%*a) 525000 2625000 Residual Income $ (d=b-c) 105000 175000