(1)
return on investment = profit margin x investment turnover
= (net operating income/Sales) X (Sales/average operating assets)
for Osaka division:
Return on investment = ($651000/$9300000) x ($9300000/$2325000)
= 28%
for Yokohama division:
return on investment = ($2070000/$23000000) x ($23000000/$11500000)
= 18%
(2)
Residual income = net operating income - (average operating assets x minimum required rate of return)
for Osaka division:
residual income = $651000 - ($2325000 x 14%)
= $325500
for Yokohama division:
residual income = $2070000 - ($11500000 x 14%)
= $460000
(3)
no, greater amount of residual income does not necessarily indicate that it is better managed. Return on investment of Yokohama is less than Osaka.
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected...
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