Summer self liquidating loan aspx
Say that you have option A, to invest in the stock market hoping to generate capital gain returns.Option B is to reinvest your money back into the business, expecting that newer equipment will increase production efficiency, leading to lower operational expenses and a higher profit margin.Understanding the potential missed opportunities foregone by choosing one investment over another allows for better decision-making.The formula for calculating an opportunity cost is simply the difference between the expected returns of each option.
Assume that, given a set amount of money for investment, a business must choose between investing funds in securities or using it to purchase new equipment.
earned if he or she invested the money in another instrument.
Thus, while 1,000 shares in company A might eventually sell for a share, netting a profit of ,000, during the same period, company B increased in value from a share to .
No matter which option the business chooses, the potential profit it gives up by not investing in the other option is the opportunity cost.
The difference between an opportunity cost and a sunk cost is the difference between money already spent and potential returns not earned on an investment because the capital was invested elsewhere.
It is important to compare investment options that have a similar risk.