As Equation (1) explains, the opportunity cost of capital
depends on equilibrium returns, the opportunity cost of capital
and the return standard deviations are simultaneously determined.
The opportunity cost of capital
is equal to the sum of the after-tax cash flow plus the after-tax capital gain less any land taxation.
We will see that the opportunity cost of capital
, also called the discount rate, the minimum attractive rate of return and the marginal rate of return among others, plays a vital role in economic analysis.
However, the implicit opportunity cost of capital
for the Meriwether group appeared to fall when they left Salomon Brothers, in contradiction to the argument in the text.
Building on Ingersoll and Ross's insight that waiting to invest means keeping alive a call option on the opportunity cost of capital
, Berk (1999) presented a simple investment rule that offers an unambiguous theoretical relationship between market interest rates and fixed investment.
When an industry settles into a long-term competitive equilibrium, all assets are expected to earn their opportunity cost of capital
because any economic profits have already been driven away by competition in the industry in terms of expansion by existing firms or entrance by new firms.
This includes both the costs of failure and the opportunity cost of capital
The dividend payment at the end of the fiscal year compensates the investor for the opportunity cost of capital
that he incurs in the upcoming fiscal year.
Since the timing and costs of a partition suit and a sale are uncertain, an investor purchasing an undivided interest in real estate would be expected to discount the pro rata value of a fee simple interest based on the costs of a partition suit and sale; the opportunity cost of capital
invested in the interest; and the uncertainty of the timing, costs, and outcome.
But investors are simply applying an age-old textbook valuation model--present value equals future cash flow streams discounted at the opportunity cost of capital
the excess profit above the opportunity cost of capital