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Answer (B) is correct . Return on investment (ROI) is one of the two most commonly used performance measures for investment centers. If sufficient capital is available, as it is in KHD’s case, a firm should invest in any project whose return is expected to exceed the cost of capital.

Answer (A) is incorrect because Program A’s expected rate of return is less than the firm’s target rate (the cost of capital).
Answer (C) is incorrect because Since there are no restrictions on capital available for investment, Program B also should be invested in (its expected rate of return exceeds the cost of capital).
Answer (D) is incorrect because If unlimited funds are available, all projects whose expected rate of return exceeds the cost of capital should be undertaken. However, the division manager might be tempted to invest only in Program D since it would be the only investment that would increase the manager’s bonus. This illustrates how using ROI to evaluate managers can cause a goal congruence problem, that could be alleviated by basing the bonus on residual income instead of ROI.