Return on Investment (ROI), though widely used, is subject to which one of the following limitations?
A) ROI cannot incorporate differences in risk across different divisions.
B) ROI ignores the amount of capital invested in a division.
C) ROI may not capture value-creation for firms operating in capital-intensive industries.
D) ROI may motivate managers to take suboptimal decisions from the standpoint of the organization as a whole.
E) ROI cannot be used to judge the performance of units of different size.

Question

Quizplus · Accepted Answer

ROI may motivate managers to focus on projects that improve their division's ROI without considering whether these projects are in the best interest of the organization as a whole, potentially leading to suboptimal decisions for the company.

Return on Investment (ROI), Though Widely Used, Is Subject to Which