Opportunity costs: In simple terms, opportunity cost refers to the benefits of the best alternative foregone. As the investment in a project involves commitment of the firm’s investible funds it becomes relevant to consider the opportunity of getting some benefits by employing the resources on some other alternative. For example, in an expansion scheme the economic value of the space required rather than its book value is relevant. In a replacement decision, the realizable value rather then the book value of the old may be relevant as a reduction of the cost of replacement. This type of cost is relevant for all types of investment decision. Imputed cost is a kind of opportunity cost. It is the cost which is not actually incurred, but would be incurred in the absence of self-owned factors, e.g. cost of retained earnings, rent on company owned facilities, etc.
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