Bilbo Company Evaluates Its Managers on the Basis of Return

question 137

Multiple Choice

Bilbo Company evaluates its managers on the basis of return on investment (ROI) . Division Three has an ROI of 15% while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the managers of Division Three to accept a project earning a 12% return?

• A) Return on investment (ROI)
• B) Residual income (RI)
• C) Both ROI and RI will motivate the manager to accept the project.
• D) Neither ROI nor RI will motivate the manager to accept the project.

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Definitions:

Budget Constraint

A representation of all the combinations of goods and services that a consumer can afford to purchase at given prices within their income level.

Utility

In economics, utility refers to the total satisfaction received from consuming a good or service.

Indifference Curve

A graph showing different bundles of goods between which a consumer is indifferent, meaning the consumer has no preference for one bundle over another.

Consumer Equilibrium

A state where an individual optimizes their utility or satisfaction from the consumption of goods and services given their income and prices.