Edith Carolina is president of the Deed Corporation. The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%. The company's minimum required rate of return is 8%. Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line

As it is already mentioned in the question above that the company is decentralized and leaves the investments decision on the divisional managers, and it is evident that Sanders is already doing good for the company as he has been able to generate a return on investment of 14% for the past three years even if the minimum required rate is only 8%. So, we know that Sanders is doing well.

Now about the new cosmetic line, the expected return is 12%, which is again more than the minimum required rate of return i.e 8%.

Hence, both Sanders and Carolina will agree to move ahead with the investment decision towards the new cosmetic line as it will generate good profits.

Thank You.

Goodluck.