Which of the following should not be used for the cost of capital to compute residual income?
A) Historical weighted average cost of capital.
B) Marginal after-tax cost of new equity capital.
C) Cost of debt and equity used to finance a project.
D) Return on investment (ROI).

Question

Quizplus · Accepted Answer

Return on investment (ROI) is a performance measure and not a cost of capital. Residual income calculations require a cost of capital to determine the required return, which ROI does not provide.

Which of the Following Should Not Be Used for the Cost