The imputed interest rate used in the residual income approach for performance measurement and evaluation can best be characterized as the:
Historical weighted average cost of capital for the company.
Average prime lending rate for the year being evaluated.
Average return on investment that has been earned by the company over a particular time period.
Average return on assets employed over a particular time period.
Choice "A" is correct. Historical weighted average cost of capital is usually used as the target or hurdle rate in the residual income approach. Choices "c", "d", and "b" are incorrect, per the above definition.
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