Answer (C) is correct.
Residual income is the excess of the return on an investment over a
targeted amount equal to an imputed interest charge on invested capital.
The rate used is ordinarily set as a target return by management but is
often equal to the weighted average cost of capital. Some enterprises
prefer to measure managerial performance in terms of the amount of
residual income rather than the percentage ROI because the firm will
benefit from expansion as long as residual income is earned.