1B3F KHD INDUSTRIES IS A MULTIDIVISIONAL FIRM THAT EVALUATES ITS MANA...

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.