5 value 1.00 points Meiji Isetan Corp. of Japan has two regional divisions with

Question

5 value 1.00 points 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 $10,300,000 $ 33,000,000 $ 721,000 $ 2,970,000 $ 2,575,000 $16,500,000 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 3. Is Yokohama's greater amount of residual income an indication that it is better managed? O Yes No

Explanation / Answer

1) Osaka Yokohama Margin (Net operating income/Sales) 7.00% 9.00% (721000/10300000) (2970000/33000000) Turnover (Sales/Average operating assets) 4 2 (10300000/2575000) (33000000/16500000) ROI (Margin/Turnover) 1.75% 4.50% (7%/4) (9%/2) 2) Osaka Yokohama Average operating assets 2575000 16500000 Net operating income 721000 2970000 Minimum required return on average assets 16% 16% Residual income (net operating income-(minimum required rate of return*Average operating assets) 309000 330000 3) No. Because the average operating assets and turnover of Yokohama is much more than the Osaka

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