141. CSO: 1B3d LOS: 1B3i
Oakmont Company has two divisions, Household Appliances and Construction
Equipment. The manager of the Household Appliances Division is evaluated on the basis
of return on investment (ROI). The manager of the Construction Equipment Division is
evaluated on the basis of residual income. The cost of capital has been 12% and the
return on investment has been 16% for the two divisions. Each manager is currently
considering a project with a 14% rate of return. According to the current evaluation
system for managers, which manager(s) would have incentive to undertake the project?
a. Both managers would have incentive to undertake the project.
b. Neither manager would have incentive to undertake the project.
c. The manager of the Household Appliances Division would have incentive to
undertake the project while the manager of the Construction Equipment Division
would not have incentive to undertake the project.
d. The manager of the Construction Equipment Division would have incentive to
undertake the project while the manager of the Household Appliances Division
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