Define implicit cost and explicit costs, Financial Management

Q. Define Implicit cost and explicit costs?

Implicit cost and explicit costs: the implicit cost is the rate of return associated with the best invests opportunity for the firm and its shareholders that will be foregone if the project presently under consideration by the firm were accepted. It is thus the opportunity cost. For example, the implicit cost of retained earnings is the rate of return available to the shareholders had the funds been distributed to them. The explicit cost of any source of capital is the discount rate that equates the present value of cash inflow that is incremental to the taking of the financial opportunity with present value of its incremental outflows. The cash outflow may be in the form of the interest payment, dividend and repayment of the principle sum.

Posted Date: 6/20/2013 3:33:20 AM | Location : United States

Related Discussions:- Define implicit cost and explicit costs, Assignment Help, Ask Question on Define implicit cost and explicit costs, Get Answer, Expert's Help, Define implicit cost and explicit costs Discussions

Write discussion on Define implicit cost and explicit costs
Your posts are moderated
Related Questions
Q. Firms operation and financing decision? Firms operation and financing decision risks or the variability of returns also results for the decision make within the company. Ris

Objectives and Functions of ASIC The objective of ASIC is to ensure the confident and informed participation of consumers in the financial system. To attain this objective, it

Under what circumstances would market to book value ratios be misleading?  Explain. The Market to Book ratio is helpful, however it is only a irregular approximation of how li

YT is the Finance Manager of SBM Magazine Publishing Company. He has recently had his appraisal and was expecting that he would get a excellent review, as he felt that he had met a

Tests of controlor systems based auditing Tests to obtain audit evidence about effective operation of the accounting and internal control systems. It isn't concerned about deta

Discuss how a business might limit agency problem between management and creditors

In a putable bond, the bondholder has the right to force the issuer to pay off the bond prior to the maturity date. Let us consider the previous example with the

The management of Border Bank has asked you to help with it with its market risk calculations. It has compiled the following data on its financial assets: • $500 million of amorti

The Selling Process The four key elements that constitute the selling process are: (i) identification of prospective buyers, (ii) selection of the type of selling process to be

Pros and Cons Simulation technique allows experimentation with a model of the real life system. Whenever experimenting with the system itself is risky and/or costly, simulation