What You Give Up to Obtain an Item Is Called

question 11

Multiple Choice

What you give up to obtain an item is called your

• A) opportunity cost.
• B) explicit cost.
• C) true cost.
• D) direct cost.

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Definitions:

Crossover Rate

The point at which two different investment projects have the same net present value (NPV) or rate of return, often used in capital budgeting to compare the desirability of projects.

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, considering inflation and returns, used to evaluate investments.

IRR

Internal Rate of Return; a financial metric used to gauge the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Cost of Capital

The rate of return a company must earn on its investment projects to maintain its market value and attract funds.