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

question 56

Multiple Choice

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.

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Definitions:

Economic Welfare

The overall well-being and standard of living of people in an economy, often measured by standards such as health, education, and income.

Negative Externalities

occur when the production or consumption of goods and services imposes costs on third parties not involved in the transaction.

Underground Economy

consists of unreported income from the production of legal goods and services, either due to tax avoidance or the desire to avoid government regulations.

Gross Domestic Product

The total valuation in terms of money or market prices of all goods and services completed within a country’s borders within a specified time period.