Asked by Chris Hughes on Jul 27, 2024
Verified
The use of return on investment as a sole performance measure may lead managers to make decisions that are not in the best interests of the company as a whole.
Return on Investment
A measure of the profitability of an investment, calculated by dividing the gain from the investment by its cost.
- Examine the effects of decision-making processes on Return on Investment and residual earnings.
- Understand the constraints associated with the exclusive use of financial performance metrics for making decisions.
Verified Answer
TO
Terry O'NeilJul 31, 2024
Final Answer :
True
Explanation :
Return on Investment (ROI) focuses on achieving financial returns without necessarily considering the broader strategic objectives of the company, potentially leading managers to reject profitable projects that could benefit the company in the long term if those projects have a lower ROI than existing benchmarks.
Learning Objectives
- Examine the effects of decision-making processes on Return on Investment and residual earnings.
- Understand the constraints associated with the exclusive use of financial performance metrics for making decisions.
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