Answered: Division Osaka Yokohama Sales..... Net…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Contrasting Return on Investment (ROI) and Residual Income

Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:

Required:

1. For each division, compute the return on investment (ROI) in terms of margin and turnover. Where necessary, carry computations to two decimal places.

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.

3. Is Yokohama’s greater amount of residual income an indication that it is better managed? Explain.

Division
Osaka
Yokohama
Sales.....
Net operating income
$3,000,000 $9,000,000
$210,000
$1,000,000 $4,000,000
$720,000
Average operating assets

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