A project's opportunity cost of capital is:
A) the forgone return from investing in the project.
B) the return earned by investing in the project.
C) equal to the average return on all company projects.
D) designed to be less than the project's IRR.

Question

Quizplus · Accepted Answer

Opportunity cost of capital refers to the return which is forgone by not investing in the next best alternative project. This cost is associated with the cost incurred by the company for investing its money in a particular project. Option A best describes the concept of opportunity cost of capital as it mentions the forgone return from investing in the project.

A Project's Opportunity Cost of Capital Is