Palmer Corporation recently introduced a new bonus scheme that will reward managers based on their division's profitability. Palmer has yet to decide whether it will use ROI or RI to measure divisional performance (at this stage, it is 50-50 whether Palmer will use ROI or RI). However, the firm has decided that it will allow the managers to decide for themselves whether their division's investment will be measured using gross book value or net book value of assets. Palmer uses a hurdle rate of 12% on investment to calculate RI.

Regional division	Operating income	Net book value of total assets	Accumulated depreciation	Gross book value of total assets.
Melbourne	$2 300 000	$10 000 000	$3 000 000	$13 000 000
Sydney	$3 000 000	$20 000 000	$9 000 000	$29 000 000

Assume each manager seeks to maximize their division's measured profitability.

Select the statement that correctly identifies the method for calculating profitability that each manager will select.

Group of answer choices

a. The managers of both divisions will select net book value because for both divisions, net book value produces higher measured profitability.

b. Both the Melbourne manager and the Sydney managers are indifferent to how the firm measures investment. All that matters is whether the firm uses ROI or RI in the bonus schemes.

c. The managers of both divisions will select gross book value because, for both divisions, gross book value yields larger ROI and RI.

d. The manager of the Melbourne division will select gross book value to measure investment. The manager of the Sydney division will select net book value. This is because each division's choice leads to higher measured profitability.