From the above arguments, the annual profit function for the retailer can be expressed as [PI](T) = -holding cost + selling profit - ordering cost - annual opportunity cost of capital
Third, we set portfolio opportunity cost equal to the weighted average of the opportunity costs of the market and the venture, and solve for venture opportunity cost of capital
Waiting is valuable because interest rates are stochastic and, thus, the opportunity cost of capital
may be lower tomorrow than it is today.
Except in the case of the limited partnership, the minimum fraction of initial wealth, w, in total assets, K, that the entrepreneur needs to launch the project depends not only on the opportunity cost of capital
, r, but also on the project's profitability, k.
The time to sell and the opportunity cost of capital
are used to determine the investor's opportunity cost of selling the partitioned interest.
Since similar opportunities are open to private-sector firms, the rate of interest on government debt is the opportunity cost of capital
for a risk-free investment by both the public and private sectors.
The 15 per cent is the opportunity cost of capital
, the minimum expected rate of return to prompt your investment, the required rate of return or the hurdle rate.
the excess profit above the opportunity cost of capital
Has advantages over the internal rate of return method, which assumes that the cash can be reinvested at the internal rate of return rather than the opportunity cost of capital
However, in industries characterized by excess capacity and where the existence of a secondhand market for capital is doubtful, for example, fishing, the opportunity cost of capital
is not clear.
In general, individuals should consider the after-tax cash flows associated with alternative borrowing arrangements, the period of time in which these cash flows occur, and the opportunity cost of capital
in order to identify the least costly financing alternative.
As for opportunity cost, it must be underlined its being identical, from an economic and financial perspective, to discount rate, given fact computation of (net) present value of an investment project implies identification of opportunity cost of capital
with unit of measure of firm's efforts and results, namely: