value: 15.00 points Exercise 11-6 Contrasting Return on Investment (ROI) and Res
ID: 2462810 • Letter: V
Question
value: 15.00 points Exercise 11-6 Contrasting Return on Investment (ROI) and Residual Income [L011-1, L011-2] t (ROI) and Residual Income L011-1, O1-2] Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Sales Net operating income Average operating assets Yokohama $ 9,500,000 $25,000,000 $ 855,000 $ 2,750,000 $ 2,375,000 $12,500,000 Required 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. Osaka YokohamaExplanation / Answer
Osaka Division
ROI= (855,000/9,500,000) X (9,500,000/2,375,000) X 100
ROI= 0.09 X 4 X 100
ROI= 36%
Yokohama Division
ROI= (2,750,000/25,000,000) X (25,000,000/12,500,000) X 100
ROI= 0.11 X 2 X 100
ROI=22%
2.
Osaka Division
Minimum required return= (Average operating assets X minimum required rate)
= 2,375,000 X 18%
= 427,500
Residual Income= Net Operating Income - Minimum required return
= 855,000 – 427,500
= 427,500
Yokohama Division Minimum required return= (Average operating assets X minimum required rate)
= 12,500,000 X 18%
= 2,250,000
Residual Income= Net Operating Income - Minimum required return
= 2,750,000 – 2,250,000
= 500,000
osaka
Yokohama
Average Operating Assets
23,750,000
12,500,000
Net Operating income
855,000
2,750,000
Minimum Required return on average
427,500
2,250,000
Residual income
427,500
500,000
No, ROI of Osaka is higher
osaka
Yokohama
Average Operating Assets
23,750,000
12,500,000
Net Operating income
855,000
2,750,000
Minimum Required return on average
427,500
2,250,000
Residual income
427,500
500,000
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