KHD Industries is a multidivisional firm that evaluates its managers based on the return on
investment (ROI) earned by their divisions. The evaluation and compensation plans use a
targeted ROI of 15% (equal to the cost of capital), and managers receive a bonus of 5% of
basic compensation for every one-percentage point that the division’s ROI exceeds 15%.
David Evans, manager of the Consumer Products Division, has made a forecast of the
division’s operations and finances for next year that indicates the ROI would be 24%. In
addition, new short-term programs were identified by the Consumer Products Division and
evaluated by the finance staff as follows.
Program ..Projected ROI
Assuming no restrictions on expenditures, what is the optimal mix of new programs that
would add value to KHD Industries?