Which of the following situations is most likely to pose a problem for companies that use return on investment (ROI) as a measure of a manager's performance?
A) Managers may be encouraged to purchase more operating assets than they otherwise should.
B) Managers may be discouraged from purchasing operating assets that could improve overall profitability.
C) Managers may be discouraged from reducing their division's costs.
D) Managers may be discouraged from paying off debt in order to reduce interest costs.

Question

Quizplus · Accepted Answer

If managers are solely judged based on ROI, they may avoid purchasing new operating assets that could improve the overall profitability of the company because this would decrease the short-term ROI. Therefore, the focus on ROI can lead to a reluctance to invest in long-term projects or assets.

Which of the Following Situations Is Most Likely to Pose