Final answer:
Inflation understatement is the most suitable deficiency listed for using historical cost to calculate ROI since it doesn't account for changes in market value over time.
Step-by-step explanation:
Potential deficiencies of using historical cost to calculate divisional return on investment (ROI) include inflation understatement, delayed recognition of gains, and lack of timely adjustment to changing conditions. Using historical cost can mean assets are recorded at their original purchase price, without accounting for changes in market value or inflation over time. Due to this, option 1: 'Inflation understatement' is the most suitable answer, as it reflects the problem that historical costs do not reflect the current purchasing power or the true value of the assets involved. Options involving accurate reflection of market value, delayed recognition of gains, or timely adjustment typically highlight issues with the historical cost concept, as it does not provide these benefits.