Senior managers at Criterion Products are evaluated in terms of increase in profit. In fiscal 2013, Criterion Products had net operating profit after taxes of $ 2,000,000 and invested capital of $ 20,000,000. In fiscal 2014, the company had net operating profit after taxes of $ 2,500,000 and invested capital of $ 30,000,000. Senior managers at Valcun Products are evaluated in terms of ROI. In fiscal 2013, the ROI was 18 percent while the cost of capital was only 14 percent. Near the end of fiscal 2013, managers had an opportunity to make an investment that would have yielded a return of 16 percent. However, the senior managers did not support the investment Required:

a. Explain why the senior managers at Criterion Products have an incentive to overinvest.

b. Explain why the senior managers at Valcun Products have an incentive to underinvest.