Exercise 11-6 (Algo) Contrasting Return on Investment (ROI) and Residual Income [LO11-1, LO11-2]

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	$	9,300,000	$	23,000,000
Net operating income	$	651,000	$	2,070,000
Average operating assets	$	2,325,000	$	11,500,000

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 14%. Compute the residual income for each division.

Required 1 Required 2 For each division, compute the return on investment (ROI) in terms of margin and turnover. Osaka % Yokohama % ROI Required 1 Required 2 > Required 1 Required 2 Assume that the company evaluates performance using residual income and that the minimum required rate of return for ar division is 14%. Compute the residual income for each division. Osaka Yokohama Residual income