If a manager is evaluated using the return on investment, the manager may be reluctant to invest in new equipment because the additional investment
A)may reduce profit by the cost of the investment.
B)will decrease the level of assets.
C)may decrease the return on investment.
D)may increase investment turnover.

Question

Quizplus · Accepted Answer

Return on investment (ROI) is a financial ratio that measures the profit earned on an investment. If a manager invests in new equipment, it may initially decrease the return on investment, as the additional investment will increase the denominator in the ROI equation (net income divided by investment). This may make the manager reluctant to invest in new equipment, as it could potentially decrease their ROI. However, in the long term, the new equipment may increase profitability and ultimately lead to a higher ROI.

If a Manager Is Evaluated Using the Return on Investment