Final answer:
while return on investment is a performance measure, it doesn't guarantee alignment with the company's long-term interests as other factors like economic conditions and interest rates affect investment decisions.
Step-by-step explanation:
The assertion that divisional managers will always be motivated by return on investment (ROI) to invest in proposals benefiting the company's overall ROI is false. While ROI is a common performance measure, it doesn't always align individual managers' incentives with the company's long-term interests. Managers may avoid investing in projects with lower ROI that could be beneficial in the long run or may hesitate to take risks, which could lead to missed opportunities for growth.
When firms spend money on long-term assets or projects, such as purchasing machinery or starting R&D projects, they often gauge success using ROI. They have various options for raising the necessary financial capital, such as through investors, reinvested profits, loans, or by selling stock. The choice of financing affects the cost of capital and the expectations on ROI.
Furthermore, external factors, such as interest rates and economic conditions, can significantly influence investment decisions. Lower interest rates generally encourage greater investment by reducing borrowing costs. Conversely, during economic downturns or periods of uncertainty, investment levels may drop as the expectations for future profits diminish, reducing the attractiveness of new projects regardless of their potential ROI.