The opportunity cost
of an investment; i e, the rate of return that a firm would otherwise be able
to earn at the same risk level as the investment that has been selected.
For an example, when
an investor purchases / trade stock in a firm, he / or she expects to see a
return on that investment/trade.
Since the individual expects to get back more
than his / her initial investment / amount, the cost of capital is equal to
this return that the investor/ trader receives, or / the money that the firm misses out on by
selling its stock.
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