Choice "A" is correct. The passenger division has an ROI of 16% ($40,000 operating profit divided by $250,000 investment). The cargo division has ROI of 10% ($50,000 operating profit divided by $500,000 investment). The passenger division performed better than the cargo division based on ROI. Notice that a performance measure based on ROI considers the amount invested to yield return rather than the absolute amount of operating profit. Also note that the rate associated with financing is not relevant.Choice "b" is incorrect. The cargo division ROI is 10%. However, the cargo division's ROI is lower than the passenger division's ROI of 16%. The passenger division performed better than the cargo division as measured by ROI.
Choices "c" and "d" are incorrect. Both answers incorrectly add the external borrowing rate.