Rate of opportunity cost , the way the rate is utilized in the discounted cash flow analysis, where does it appears on the time line, and whether the opportunity rate is a single number that is utilized for evaluating the potential investments.
Rate of opportunity cost , the way the rate is utilized in the discounted cash flow analysis, where does it appears on the time line, and whether the opportunity rate is a single number that is utilized for evaluating the potential investments.
To discuss: Rate of opportunity cost, the way the rate is utilized in the discounted cash flow analysis, where does it appears on the time line, and whether the opportunity rate is a single number that is utilized for evaluating the potential investments.
Expert Solution & Answer
Explanation of Solution
The interest rate where n individual can earn on an investment that is alternative with a risk that is equivalent to the risk on certain investment is known as the rate of opportunity cost. This represents the value in the time value of investments equations and it is on the top of the time line. It is not the single rate and the opportunity cost differs based on the maturity an riskiness of an investment. However, based on the investment it differs from year to year depending on the inflationary expectations.
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Which of the following methods consider the time value of money?
A. payback and accounting rate of return
B. payback and internal rate of return
C. internal rate of return and accounting rate of return
D. internal rate of return and net present value
What is an opportunity cost rate?How is this rate used in discounted cash flow analysis? Is the opportunity rate a single number that is used to evaluate all potential investments?
Which method does not consider the time value of money? Choose the correct.
A.
Net present value
B.
Internal Rate of Return
C.
Average rate of return
D.
Profitability Index