Exercise 11-6 Contrasting Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Meiji Isetan Corp....
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Exercise 11-6 Contrasting Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] 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 5 9,900,000 29,000,000 5 792,000 2,900,000 5 2.475,000 14,500,000 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 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
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