Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2594835 • 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 $10,900,000 $39,000,000 $ 763,000 S 3,510,000 S 2,725,000 $19,500,000 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 16%. Compute the residual income for each division. Osaka Yokohama Average operating assets Net operating income Minimum required return on average assets Residual income 0 3. Is Yokohama's greater amount of residual income an indication that it is better managed? O YesExplanation / Answer
1
Osaka
Margin
Net Operating income/ Sales
763000/10900000
7%
Turnover
Sales/Average operating assets
10900000/2725000
4
ROI
Margin
7.00%
Turnover
4.00
ROI
28.00%
Yokohama
3510000/39000000
9%
Turnover
Sales/Average operating assets
39000000/19500000
2
ROI
Margin
9.00%
Turnover
2.00
ROI
18.00%
2
Osaka
Yokohama
Average Operating assets
2725000
19500000
Net Operating income
763000
3510000
Minimum required rate of return
436000
3120000
Residual income
327000
390000
3. No
Yokohama is larger division than Osaka so that we can expect greater amount of residual income. Larger divisions always looks better. In fact yokhohama is not well managed because it has lesser ROI than osaka
1
Osaka
Margin
Net Operating income/ Sales
763000/10900000
7%
Turnover
Sales/Average operating assets
10900000/2725000
4
ROI
Margin
7.00%
Turnover
4.00
ROI
28.00%
Yokohama
3510000/39000000
9%
Turnover
Sales/Average operating assets
39000000/19500000
2
ROI
Margin
9.00%
Turnover
2.00
ROI
18.00%