Opportunity cost: Difference between revisions
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imported>Doug Williamson (Add cash management example. Source: ACMF October 2016 p33.) |
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It is the opportunity cost of capital and other resources that is the relevant economic measure for financial decision making purposes. | It is the opportunity cost of capital and other resources that is the relevant economic measure for financial decision making purposes. | ||
Opportunity cost is an important and powerful concept in cash management. | |||
Examples of opportunity costs include leaving cash in a non-interest bearing bank account. | |||
The organisation loses the opportunity to pay down debt (and save interest) or to invest the cash elsewhere (and earn interest). | |||
Revision as of 16:47, 10 February 2017
The expected return that is foregone by investing in a project, rather than in the next best use of capital or other resources.
It is the opportunity cost of capital and other resources that is the relevant economic measure for financial decision making purposes.
Opportunity cost is an important and powerful concept in cash management.
Examples of opportunity costs include leaving cash in a non-interest bearing bank account.
The organisation loses the opportunity to pay down debt (and save interest) or to invest the cash elsewhere (and earn interest).
