Opportunity cost: Difference between revisions
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imported>Doug Williamson (Add cash management example. Source: ACMF October 2016 p33.) |
imported>Doug Williamson (Expand to link with Opportunity loss page.) |
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1. | |||
The expected return that is foregone by investing in a project, rather than in the next best use of capital or other resources. | The expected return that is foregone by investing in a project, rather than in the next best use of capital or other resources. | ||
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The organisation loses the opportunity to pay down debt (and save interest) or to invest the cash elsewhere (and earn interest). | The organisation loses the opportunity to pay down debt (and save interest) or to invest the cash elsewhere (and earn interest). | ||
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The same as 'opportunity loss'. | |||
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* [[Cost of capital]] | * [[Cost of capital]] | ||
* [[Opportunity cost of capital]] | * [[Opportunity cost of capital]] | ||
* [[Opportunity loss]] | |||
* [[Production possibility curves]] | * [[Production possibility curves]] | ||
* [[Supernormal profit]] | * [[Supernormal profit]] | ||
Revision as of 16:37, 5 March 2017
1.
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).
2.
The same as 'opportunity loss'.
