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
. And all of the subcases can be summarized as follows:
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
This observation suggests that the reduction in the opportunity cost of capital
of large public companies or hedge funds outweighs the potential improvement in governance associated with private partnerships.
Waiting is valuable because interest rates are stochastic and, thus, the opportunity cost of capital
may be lower tomorrow than it is today.
Second, although it is important to point out evidence against the CAPM, it is even more important to provide a valid alternative for computing the opportunity cost of capital
. Economic profits, of which EVA is one version, are a sound economic concept.
As assumed, the entrepreneur and the investor face the same opportunity cost of capital
. Because the investor breaks even, there is no difference in the costs of capital to the entrepreneur with respect to outside versus inside equity.
The potential loss of income to the seller is based on an investor's estimated opportunity cost of capital
. The average time to partition the property is determined by an analysis of property partition cases.
Our focus in this section is, therefore, on imperfections, such as taxes, that drive a wedge between the opportunity cost of capital
in the public and private sectors.(19)
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.
A definition of EVA is net operating profit after taxes (NOPAT), less an internal charge for the capital employed in the business (i.e., opportunity cost of capital
But investors are simply applying an age-old textbook valuation model--present value equals future cash flow streams discounted at the opportunity cost of capital
. With this model, seemingly minor news that implies a reduced growth rate will significantly affect valuation.
Nevertheless, it would be incorrect to use the opportunity cost of capital
in holding-cost calculations to measure the effects of inventory reduction.