The opportunity cost of capital is generally not the interest rate that the firm pays on a loan from a bank or insurance company.

Question

Quizplus · Accepted Answer

The opportunity cost of capital refers to the return that could have been earned by investing in an alternative project or security with similar risk, and is not necessarily equal to the interest rate paid on a bank loan or other form of debt financing. The cost of debt, or the interest rate paid on borrowed funds, is a component of a firm's overall cost of capital, but other factors such as the cost of equity and the company's risk profile must also be considered.

The Opportunity Cost of Capital Is Generally Not the Interest