When We Choose a Particular Option, We Must Give Up

question 434

Multiple Choice

When we choose a particular option, we must give up alternative options. The highest-valued alternative forgone is the ________ of the option chosen.

• A) opportunity cost
• B) comparative advantage
• C) nonmonetary cost
• D) absolute advantage

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Definitions:

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Internal Rate

Often refers to the internal rate of return (IRR), which is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Net Present Value

A financial metric used to evaluate the profitability of an investment, accounting for its time value of money.

Capital Budgeting

The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product.