Choice "C" is correct. Residual income measures actual dollars that an investment earns over its required return rate. Performance evaluation on this basis will mean that desirable investment decisions will not be rejected by high-return divisions.
Choice "b" is incorrect. The asset base must still be measured to use the residual income approach.
Choice "a" is incorrect. Book value or fair market value may be used for either method.
Choice "d" is incorrect. The implicit cost of interest is an issue in either case.
