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Memphic Memphic
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6 years ago
What is an opportunity cost?  Should it be included in the incremental cash flows for a project?  Why or why not?
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
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6 years ago
Many projects use resources that the company already owns.  An opportunity cost is the cost of using a resource that otherwise could have provided value to the firm.  The opportunity cost of using a resource is the value it could have provided in its best alternative use.  Because this value is lost when a resource is used by another project, we should always include the opportunity cost as an incremental cost of the project.
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