5. value: 10 points Meiji Isetan Corp. of Japan has two regional divisions with
ID: 2343518 • Letter: 5
Question
5.value:
10 points
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow (in millions of yen, denoted by ¥):
Division
Osaka Yokohama
Sales ¥ 3,000,000 ¥ 9,000,000
Net operating income ¥ 210,000 ¥ 720,000
Average operating assets ¥ 1,000,000 ¥ 4,000,000
Requirement 1:
For each division, compute the return on investment (ROI) in terms of margin and turnover. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Osaka Yokohama
Return on investment % %
Requirement 2:
Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division. (Omit the "¥" sign in your response.)
Osaka Yokohama
Residual income ¥ ¥
Requirement 3:
Is Yokohama's greater amount of residual income an indication that it is better managed?
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Explanation / Answer
Requirement 1: For each division, compute the return on investment (ROI) in terms of margin and turnover Osaka ROI = 21% ROI = Margin X Turnover Margin = Net operating income/Sales X Turnover = Sales/Average operating assets Margin = 210,000/3,000,000 = .07 Turnover = 3,000,000/1,000,000 = 3 .07 X 3 = 21% Yokohama ROI = 18% ROI = Margin X Turnover Margin = Net operating income/Sales X Turnover = Sales/Average operating assets Margin = 720,000/9,000,000 .08 Turnover = 9,000,000/4,000,000 = 2.25 .08 x 2.25 = 18% Requirement 2: Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division. Osaka Yokohama Average operating assets 1,000,000 4,000,000 Required rate of return X 15% X 15% Min. required rate of return 150,000 600,000 Net operating Income 210,000 720,000 Min. required rate of return -(150,000) -(600,000) Residual Income 60,000 120,000 Requirement 3: Is Yokohama's greater amount of residual income an indication that it is better managed? Yes
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