The Major Criticism of Using Return on Investment (ROI) for Evaluating

question 115

Multiple Choice

The major criticism of using return on investment (ROI) for evaluating the financial performance of business units considered investment centers is that ROI:

• A) Gives managers of profitable business units an incentive to reject some projects that would benefit the organization as a whole.
• B) Is not easily understood by managers.
• C) Usually uses a blended rate of capital as the required rate of return.
• D) Has a long-term (strategic) focus and therefore is not useful in terms of evaluating short-term performance.
• E) Favors large units (investment centers).

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Definitions:

Coelom

Body cavity of an animal; the method by which the coelom is formed (or lack of formation) is an identifying characteristic in animal classification.

Protostomes

A group of animals characterized by the blastopore (the first opening in the developing embryo) becoming the mouth, including groups like mollusks and annelids.

Deuterostomes

A group in the animal kingdom characterized by the development of the anus from the first opening in the embryo, with the mouth developing later.

Embryonic Development

The process through which an embryo forms and develops from fertilization to birth.