Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2569334 • 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 $ 9,800,000 $28,000,000 $ 588,000 $ 2,240,000 S 2,450,000 $14,000,000 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 percenti.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 14%. 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? O YesExplanation / Answer
ROI for Osaka = net operating income / average operating assets
= 588000*100/2450000
=24%
ROI for Yokohama = 2240000*100/14000000
= 16%
2. For Osaka:
Average operating assets = 2450000
Net operating income = 588000
Minimum required return on assets = 0.14*2450000 = 343000
Residual income = 588000-343000 = 245000
For Yokohama:
Average operating assets = 14000000
Net operating income = 2240000
Minimum required return on assets = 0.14*14000000 = 1960000
Residual income = 2240000-1960000 = 280000
3. No, because the operating assets are more and return on investment for Osaka is more.