Division A is considering a project that will earn a rate of return which is greater than the imputed interest charge for invested capital, but less than the division’s historical return on invested capital. Division B is considering a project that will earn a rate of return that is greater than the division’s historical return on invested capital, but less than the imputed interest charge for invested capital. If the objective is to maximize residual income, should these divisions accept or reject their projects?

A B

a. Accept Accept

b. Reject Accept

c. Reject Reject

d. Accept Reject