By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals that will increase the overall rate of return for the company.

Question

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Using the rate of return on investment as a divisional performance measure can sometimes discourage divisional managers from investing in proposals that, while potentially profitable, might have a lower rate of return than the division's current rate. This could lead to underinvestment in projects that could benefit the company as a whole.

By Using the Rate of Return on Investment as a Divisional