Question

Tan corporation of japan has two regional divisions with headquarters in osaka and yokohama. selected data on the two divisions follow: division osaka yokohama sales $ 9,200,000 $ 22,000,000 net operating income $ 552,000 $ 1,760,000 average operating assets $ 2,300,000 $ 11,000,000 required: for each division, compute the return on investment (roi). assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 13%. compute the residual income for each division.

Answer 1

Osaka's ROI is 24% with a residual income of $253,000, while Yokohama's ROI is 16% with a residual income of $330,000.

Step-by-step explanation:

To compute the Return on Investment (ROI) for each division, we use the formula:

ROI = (Net Operating Income / Average Operating Assets) * 100

For Division Osaka:
ROI = ($552,000 / $2,300,000) * 100 = 24%

For Division Yokohama:
ROI = ($1,760,000 / $11,000,000) * 100 = 16%

The Residual Income (RI) is calculated by subtracting the product of the minimum required rate of return (13%) and the average operating assets from the net operating income.

For Division Osaka:
RI = $552,000 - (0.13 * $2,300,000) = $552,000 - $299,000 = $253,000

For Division Yokohama:
RI = $1,760,000 - (0.13 * $11,000,000) = $1,760,000 - $1,430,000 = $330,000