The opportunity cost of a resource should be considered in project analysis,unless:
A) negative cash flows result from its use.
B) the resource was purchased in a prior time period.
C) the resource has been fully depreciated.
D) the resource has no identifiable market value or alternative use within the firm.

Question

Quizplus · Accepted Answer

The opportunity cost of a resource refers to the cost of foregone opportunities i.e. the value of the next best alternative forgone when a resource is used for a particular purpose. However, if a resource has no identifiable market value or alternative use within the firm, then it may not have any opportunity cost associated with its use. Therefore, option D is the correct answer. Option A is incorrect because negative cash flows do not necessarily mean that the opportunity cost should not be considered. Option B is incorrect because the fact that a resource was purchased in a prior time period does not necessarily mean that its opportunity cost should not be considered. Option C is incorrect because the fact that a resource has been fully depreciated does not necessarily mean that its opportunity cost should not be considered.

The Opportunity Cost of a Resource Should Be Considered in Project