Opportunity cost, Managerial Economics

Opportunity Cost

This is the amount that is sacrificed when choosing one activity over the next-best alternative.  In organization, an example of opportunity cost is seen in the concept of the "hurdle rate" used by financial analysts in deciding whether to pursue a particular investment project. In financial analysis, the hurdle rate is the minimum acceptable rate of return wanted to justify the investment in a capital project. If organization managers can demonstrate that a particular project would have a rate of return that is higher than this, they are in effect saying that the advantages of this project exceed the opportunity cost of using the organization funds in this project.

Posted Date: 10/17/2012 1:30:22 AM | Location : United States

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