Problem
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:
|
Division
|
|
Osaka
|
Yokohama
|
|
Sales
|
10,500,000
|
35,000,000
|
|
Net operating income
|
630,000
|
2,800,000
|
|
Average operating assets
|
3,500,000
|
17,500,000
|
Required:
1. For each division, compute the return on investment (ROI) in terms of margin and turnover.
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?
Yes
No.