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Explain a Key Limitation of Using ROI Whereby Division Managers

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Essay

Explain a key limitation of using ROI whereby division managers manipulate the ratio in an attempt to show enhanced short-term results.

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Definitions:

Monthly Deposits

Regular payments deposited into a financial account or investment plan on a monthly basis, typically to save or earn interest over time.

Investment

The allocation of resources, usually money, to generate income or profit, including purchasing assets or securities.

Compounded Continuously

Compounded continuously refers to the mathematical limit that compound interest can reach if it is calculated and added to the principal balance continuously, leading to exponential growth.

Future Value

A prediction of what a current asset will be worth at a particular future date, using an assumed growth rate.

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