Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales $ 9,500,000 $ 25,000,000 Net operating income $ 855,000 $ 2,750,000 Average operating assets $ 2,375,000 $ 12,500,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:
| Division | ||||
| Osaka | Yokohama | |||
| Sales | $ | 9,500,000 | $ | 25,000,000 |
| Net operating income | $ | 855,000 | $ | 2,750,000 |
| Average operating assets | $ | 2,375,000 | $ | 12,500,000 |
Required:
1. For each division, compute the
2. Assume that the company evaluates performance using residual income and that the minimum required
3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Investment: It is an asset or item which is purchased and held to generate income or for appreciation in the value.
Return on investment: It is measure used to evaluate the performance and efficiency of an investment. The comparison of cost of investment and the return generated is done using this return on investment.
Residual income: It is the additional income earned over the minimum required on an investment.
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