Division A is considering a project that will earn a rate of return that is greater than the required return on operating assets, but less than the division's ROI. Division B is considering a project that will earn a rate of return that is greater than the division's ROI, but less than the required return on operating assets. If the objective is to maximise residual income, would these divisions accept or reject their projects.
$\begin{array}{cc} \text { Division A}& \text {Division } B\\end{array}$
A.$\begin{array}{cc} \text {Accept}& \text { Accept}\end{array}$
B.$\begin{array}{cc} \text {Reject}& \text { Accept}\end{array}$
C.$\begin{array}{cc} \text {Reject }& \text {Reject}\end{array}$
D.$\begin{array}{cc} \text {Accept}& \text { Reject}\end{array}$
A)Option A
B)Option B
C)Option C
D)Option D

Question

Division A is considering a project that will earn a rate of return that is greater than the required return on operating assets, but less than the division's ROI. Division B is considering a project that will earn a rate of return that is greater than the division's ROI, but less than the required return on operating assets. If the objective is to maximise residual income, would these divisions accept or reject their projects.
$\begin{array}{cc} \text { Division A}& \text {Division } B\\end{array}$
A.$\begin{array}{cc} \text {Accept}& \text { Accept}\end{array}$
B.$\begin{array}{cc} \text {Reject}& \text { Accept}\end{array}$
C.$\begin{array}{cc}  \text {Reject }& \text {Reject}\end{array}$
D.$\begin{array}{cc} \text {Accept}& \text { Reject}\end{array}$ 
A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

Division A would accept the project because it earns a return greater than the required return on operating assets, thus increasing residual income. Division B would reject the project because it earns a return less than the required return on operating assets, which would decrease residual income.

Division a Is Considering a Project That Will Earn a Rate