A. The marginal after-tax cost of new equity capital may be used in the residual income calculation only if it is set as a target rate of return. Otherwise, this past figure is irrelevant to the evaluation of future managerial performance.

B. In the calculation of residual income, management normally sets a desired target rate of return that it wants to achieve. The target rate of return may be set based prior experience or any other estimation depending on management's decision.

C. The average return on investment that has been earned by the company over a particular period may be used in residual income calculation only if it is set as a target rate of return. Otherwise, this past figure is irrelevant to the evaluation of future managerial performance.

D. The historical weighted average cost of capital for the company may be used in residual income calculation only if it is set as a target rate of return. Otherwise, this past figure is irrelevant to the evaluation of future managerial performance.