Opportunity cost of capital(redirected from Operating Costs of Capital)
Opportunity cost of capital
Expected return that is forgone by investing in a project rather than in comparable financial securities.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Opportunity Cost of Capital
The difference in return between an investment one makes and another that one chose not to make. This may occur in securities trading or in other decisions. For example, if a person has $10,000 to invest and must choose between Stock A and Stock B, the opportunity cost is the difference in their returns. If that person invested $10,000 in Stock A and received a 5% return while Stock B makes a 7% return, the opportunity cost is 2%. One way of conceptualizing opportunity cost is as the amount of money one could have made by making a different investment decision. Importantly, opportunity cost is not a type of risk because there is not a chance of actual loss.
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