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An investment center manager is evaluating two projects (Project 1 and Project 2). The firm's...

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Accounting

An investment center manager is evaluating two projects (Project 1 and Project 2). The firm's required rate of return is 15%. The manager's current ROI is 20%. These two projects are not mutually exclusive. (Project data is expressed in present value.)

Project 1 will provide $185,000 in earnings and require investment of $800,000.

Project 2 will provide $105,000 in earnings and require investment of $565,000.

Which of the following is true?
Answers: a.

Using ROI, the manager is likely to reject Project 1 and accept Project 2, even though both have positive residual income.
b.

Using either ROI or residual income, the manager is likely to accept Project 1 and reject Project 2.
c.

Using either ROI or residual income, the manager is likely to reject Project 1 and accept Project 2.
d.

Using ROI, the manager is likely to accept Project 1 and reject Project 2, even though both have positive residual income.

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