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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
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.
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