Question

Which of the following statements is correct? Managers will be more likely to pursue projects that will benefit the entire company when being evaluated on ROI instead of residual income. A manager might reject a proposal using ROI that the manager would accept using residual income. A project that is not acceptable usi

Answer 1

Answer:

A.Incorrect

B. Incorrect

Explanation:

a) A manager might reject a proposal using ROI that the manager would accept using residual income

The statement is incorrect. The reverse is true. Using ROI entails the manager comparing the ROI after a project to the ROI before, where implementing a project makes the ROI after to be less than what it before the project, the Manager would most likely not implement the project. This would happen notwithstanding that the project  produces positive residual income.

b) Managers will be more likely to pursue projects that will benefit the entire company when being evaluated on ROI instead of residual income.

This statement is incorrect. ROI makes the manager to pursue his own interest and that of its division at the expense of the group objectives. It leads to sub-optimal decision