138. CSO: 1B3d LOS: 1B3f
KHD Industries is a multidivisional firm that evaluates its managers based on the return
on investment (ROI) earned by their divisions. The evaluation and compensation plans
use a targeted ROI of 15% (equal to the cost of capital) and managers receive a bonus of
5% of basic compensation for every one-percentage point that the division's ROI
exceeds 15%. David Evans, manager of the Consumer Products Division, has made a
forecast of the division's operations and finances for next year that indicates the ROI
would be 24%. In addition, new short-term programs were identified by the Consumer
Products Division and evaluated by the finance staff as follows.
Program Projected ROI
A 13%
B 19%
C 22%
D 31%
Assuming no restrictions on expenditures, what is the optimal mix of new programs that
would add value to KHD Industries?
a. A, B, C, and D.
b. B, C, and D only.
c. C and D only.
d. D only.
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