When assessing the potential profitability of assorted investments, companies look for the option that is likely to yield the greatest return. Often, they’ll decide this by wanting at the anticipated rate of return for an funding car. However, businesses must additionally think about the chance value of each possibility.
In this scenario, investing $10,000 in firm A netted a yield of $2,000, whereas the identical amount invested in firm B would have netted $5,000. The $3,000 distinction is the opportunity cost of choosing firm A over company B. The distinction between a possibility price and a sunk price is the distinction between cash already spent and potential returns not earned on an investment as a result of the capital was … Read More