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The cost of capital is significantly lower than the target return on investment which the company seeks, making the residual income show a more positive position.
What does the above statement mean
It is hard for me to be certain without seeing the question to which this is an answer.
However, the lower the notional interest charged in calculating the residual income, then the higher the residual income will be than if they had used the target return. Using a higher return would mean that the residual income would be lower.