Pronto Co. awards large bonuses at year end for division managers. This bonus is based on return on assets (ROA) times $4,000,000 each year. Division managers with a ROA below the cost of capital get no bonus.
The East Division manager has been well above the cost of capital for years and is earning close to 17% ROA. A customer in the East Division's area requested a proposal for a new project.
The East Division manager estimated that the ROA on that proposal would be about 8%, just above the cost of capital. What is East Division manager's likely response and the impact on Pronto Co.?