ROI and RI mcq 2

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August 3, 2020 at 9:07 pm #579106
humai
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Sir using the same data as in previous question
Manager 2 wishes to use ROI as a performance measure
Which of the following is a valid reason for Willow co choosing to use ROI and not RI
a) Identifying controllable profits and investment can be difficult
b) RI attempts to measure divisional performance in a single figure
c) ROI ties in with NPV theoretically best way to make investment decisions
d) Manager 1 will show a higher RI because of size of division rather than superior managerial performance
Sir correct ans is d) but can you please explain me that why it is correct and why others are wrong?
August 4, 2020 at 9:42 am #579166
John Moffat
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a) it is the same problem for both ROI and RI
b) both ROI and RI try to measure with a single figure
c) ROI has no connection with the NPV
d) a bigger division will make bigger profits and so automatically will have a higher RI (as I explain in my free lectures)
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