1B3I OAKMONT COMPANY HAS TWO DIVISIONS, HOUSEHOLD APPLIANCES AND CONS...

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