Brownside Company is highly decentralized. The divisions can issue their own debt, but they must pay their own interest. The manager of Brownside’s Park Division is evaluated based on ROI. He has borrowed a considerable amount of money from the bank for expansion. A large interest expense on that debt is lowering the division’s profits. Brownside Company’s president calculates the ROI of the Park Division by using the net profit figure, which includes the interest expense, and dividing this figure by the total assets of the division.

Why does the manager of the Park Division believe this ROI measure is inappropriate?

Suggest alternative performance measures for the Park Division.