Opportunity Cost Of Capital Equation. For example the senior management of a business expects to earn 8 on a long term 10 000 000 investment in a new manufacturing facility or it can invest the cash in stocks for which the expected long term return is 12. 5 of 2 000 000 is 100 000.
Review the calculation for roi return on investment which is roi current price of the investment cost of the investment cost of the investment. Then i would have literally lost 100 000 on that transaction and although i. Fo return on best foregone option begin aligned text opportunity cost text fo text co textbf where.
My opportunity cost of capital is 100 000.
The best way to calculate the opportunity cost of capital is to compare the return on investment on two different projects. The wacc formula is e v x re d v x rd x 1 t. Another way to think about it is let s just say that i buy the building and i sell it at the end of the year. One relative formula for the calculation of opportunity cost could be.
