Decisions based on ROl. RI) Destin Marine uses ROI to evaluate the perfor¬ mance of its two division managers. The following estimates of relevant measures have been made for the upcoming year:

Both division managers have the autonomy to make decisions regarding new investments. The Powerboats division manager is consideiing investing in a new asset that would generate a 14 percent ROI; the Sailboats division manager is considering an asset investment that would generate an 18 per¬ cent ROI.

a. Compute the projected ROI for each division, disregarding the contem¬ plated new investments.

b. Based on your answer in part (a), which of the managers is likely to ac¬ tually invest in the additional assets under consideration?

c. Are the outcomes of the investment decisions in part

(b) likely to be consistent with overall corporate goals? Explain.

d. If the company evaluated the division managers’ performances using a residual income measure with a target return of 17 percent, would the outcomes of the investment decisions be different from those described in part (b)? Explain.

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Powerboats Sailboats Sales Expenses $18,000,000 16,200,000 42,000,000 Divisional assets 15,000,000 30,000,000 $48,000,000 Total Company $66,000,000 58,200,000 45,000,000