Opportunity Cost Of Capital Vs Cost Of Capital. Similar to the cost of capital to equity shareholders we have to allow for any risk. A simple example is if you needed to borrow money to fund a project and did it all through debt with interest of 5 then 5 is what it costs.
The opportunity cost of capital is defined as the return on capital which might be obtained by its employment when the central objective of planning policy is to use capital so its return to employment in any one investment is at least as high as its return from employment in any alternative investment. Facets of financial policy include valuation portfolio theory hedging and capital structure. What is cost of capital.
In other words it is the expected compound annual rate of return that will be earned on a project or investment.
An investor will invest in a project only if the rate of return is higher than opportunity cost capital minimum rate of return. Cost of capital vs wacc weighted average cost of capital and cost of capital are both concepts of finance that represent the cost of money invested in a firm either as a form of debt or equity or both. In other words it is the expected compound annual rate of return that will be earned on a project or investment. Facets of financial policy include valuation portfolio theory hedging and capital structure.
