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

Question

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Using the rate of return on investment as a performance measure may lead divisional managers to focus on projects that improve their division's rate of return, potentially ignoring projects that could benefit the company overall but have a lower rate of return than the division's current average.

By Using the Rate of Return on Investment as a Divisional