Each of divisions Alpha and Beta are considering additional investment opportunities. The following information is available:

	Division Alpha	Division Beta
Amount of the investment	$12m	$20m
Expected profit from the investment	$1.8m	$4m
Current overall ROI at division	13%	25%
Cost of capital	16%	16%

Required:

1. Explain the likely decision by the manager at each division as to whether to proceed with the proposed investment where ROI is used as the decision basis. You should also comment on whether the decision is correct or incorrect.
2. Explain how the use of a residual income approach would improve the decision making at each division.