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
WORKING CAPITAL MANAGEMENT Working capital relates to the capital required for daily operations of a business enterprise.  The requirement for Working Capital is omnipresent fo

What is a marginal cost of capital schedule (MCC)?  Is the schedule always a horizontal line?  Explain. The marginal cost of capital schedule is a graphic representation of the

Leveraged Buyout (LBO) Acquisition of an organization through the accumulation of 70 % or more of the organizations total capitalized debt.

Issuing Procedure Treasury bills are sold using the auction procedure. The Treasury entertains both competitive and non-competitive tenders for T-Bills. Government securities f

What does it mean when we say that the correlation coefficient for two variables is -1? What does it mean if this value were zero? What does it mean if it were +1? Correlation

How could we obtain an indisputable discount rate? How should we calculate the beta and the risk premium? There is no indisputable discount rate: a discount rate is a subjectiv

how do you calculate the current ratio

Modern / Discounting Cash Flow Techniques : These methods generally are of more use to businesses in their investment decisions. They take into account the time value of money and

Part 1: Contingency plan Create contingency plans for the following scenarios: > One of your highly qualified consultants has given three months notice and is planning to move to a