Opportunity Cost Of Capital Formula. Investopedia has a concise and perfect formula for calculating opportunity cost and it can apply to everything from huge enterprises that have portfolios of projects to individual investors and their own portfolios. The opportunity cost of capital of investing in the manufacturing facility is 2 which is the difference in return on the two investment opportunities.
Opportunity cost 2 the opportunity cost of choosing the software company stock as an investment carrier is 2. Cost of capital cost of debt cost of preferred stock cost of common stocks cost of capital interest expense 1 tax rate d 0 p 0 r f β r m r f or. Opportunity cost formula and calculation opportunity cost fo co where.
The formula for opportunity cost in dollars can be given as opportunity cost opportunity cost in money invested opportunity cost 2 100 000 opportunity cost 2 000 the answer is 2 000.
If we think about the cost of opportunity like this then the equation is very easy to understand and it s straightforward. One relative formula for the calculation of opportunity cost could be. It can be a project foreign investment or a particular option taken by a group of people or an individual for personal purpose or for a business purpose. This concept is not as simple as it may first appear.
