Question

Edith Carolina is president of the Deed Corporation. The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%. The company's minimum required rate of return is 8%.

Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line?

	Carolina	Sanders
A)	accept	reject
B)	reject	accept
C)	accept	accept
D)	reject	reject

Edith Carolina is president of the Deed Corporation. The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%. The company's minimum required rate of return is 8%.

Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line?

	Carolina	Sanders
A)	accept	reject
B)	reject	accept
C)	accept	accept
D)	reject	reject

Multiple Choice

Choice D

Choice C

Choice A

Choice B

Answer 1

In this case option A is the correct option, i.e. Carolina will accept the new cosmetic line but Sanders will reject the new cosmetic line. This is because Carolina being the president of Deed Corporation would like to take the cosmetic line differently and with the expected rate of return of 12%, i.e. higher than the minimum required rate of return of 8%. However, Sanders has achieved a 14% rate of return from his cosmetic division thus, being the manger he would not like his performance to go down with 12% return from the new cosmetic line. Thus, option A is the correct option.