Question: EXERCISE 12-6 Contrasting Return on Investment (RON) and Residual Income

Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:

Required:

1. For each division, compute the return on investment (ROI) in terms of margin and turnover.
   Where necessary, carry computations to two decimal places.
2. Assume that the company evaluates performance using residual income and that the
   required rate of return for any division is 15%. Compute the residual income for each division .
3. Is Yokohama’s greater amount of residual income an indication that it is better managed?

Explain.

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