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The Objective of Maximizing Return on Investment May Induce Managers

question 12

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The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted.


Definitions:

Straight-Line Method

A method of depreciation that allocates an asset's cost evenly throughout its useful life.

Carrying Amount

The value at which an asset or liability is recognized on the balance sheet, calculated as its original cost minus depreciation or amortization.

Useful Life

The period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from the asset by an entity.

Management Fee

A charge levied by an investment manager for managing an investment fund's assets, often calculated as a percentage of the assets under management.

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