Can someone please explain to me how to get the minimum required return on avera

Question

Can someone please explain to me how to get the minimum required return on average assets? Thank you :)

Required 1. For each division, compute the return on investment (ROI) in terms of margin and turnover 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 17%. Compute the residual income for each division. Osaka Yokohama 2,425,000'/ $ Average operating assets Net operating income Minimum required return on average assets Residual income 13,500,000 2,700,000v 2X 2 775,9982,699,998 3. Is Yokohama's greater amount of residual income an indication that it is better managed? OYes

Explanation / Answer

minimum required rate of return=17%

minimum required rate of return on average assets=

osaka-2,425,000*17%=$412,250

yokohama-13,500,000*17%=$2,295,000.

Residual income=osaka-776,000-412,250=$363,750

yokohama-2,700,000-2,295,000=$405,000.

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