Examples of implicit costs in the following topics:
-
- Opportunity cost refers to the value lost when a choice is made between two mutually exclusive options.
- Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).
- Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility are also considered implicit. or opportunity, costs.
- The opportunity cost of having happier children could therefore be a remodeled bathroom.
- However, there are possible implicit benefits, such as autonomy and freedom to be "your own boss", and implicit costs, such as the stress of running your own business.
-
- The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost.
- While the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation.
- An implicit assumption in the use of payback period is that returns to the investment continue after the payback period.
- Payback is the amount of time it takes to return an initial investment; however, it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost.
-
- The payback method is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing or other important considerations, such as opportunity cost.
- While the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation.
- An implicit assumption in the use of the payback method is that returns to the investment continue after the payback period.
-
- Discounted payback period is the amount of time to cover the cost, by adding positive discounted cash flow coming from the profits of the project.
- It is the amount of time that it takes to cover the cost of a project, by adding positive discounted cash flow coming from the profits of the project.
- The income of the project will be discounted to assess the loss in value due to time (inflation or opportunity cost) to find how long it would take to recover the initially money invested.
- Whilst the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation.
- An implicit assumption in the use of payback period is that returns to the investment continue after the payback period.
-
- In theory, you should make investment with an IRR greater than the cost of capital.
- This investment has an implicit rate of return, but you don't know what it is.
-
- Inflation, interest rates, and the borrowing costs of companies also contribute to a country's attractiveness.
- If a country has a high rate of inflation, its central banks will raise the interest rate, which increases the cost of borrowing for firms.
- It is even worse if firms produce in countries of high inflation and then sell products to countries of low inflation, since the input costs are on the rise while the revenue stays stable.
- It asks how much money would be needed to purchase the same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate.
-
- The cost of new common stock is determined by adding flotation costs to the cost of current equity.
- The cost of new equity is 15.3%.
- The cost of external equity is higher than the cost of existing equity, or retained earnings.
- Flotation costs include all costs of issuing the securities, such as banker's fees, legal fees, underwriting fees, filing costs, etc.
- Flotation cost of 3%.
-
- Information costs influence the bond prices and interest rates.
- We include these costs in the bond's market price and interest rate, and they raise the cost of borrowing.
- Investors pay a greater cost to acquire information for the high information cost bonds.
- Thus, investors are attracted to the low-information cost bonds, boosting their demand for low information cost bonds, increasing the market price and decreasing market interest rate.
- Therefore, low-information-cost bonds pay a lower interest rate.
-
- Sunk costs are retrospective costs that cannot be recovered, and are therefore irrelevant to future investment decisions in the project which incurs them.
- Sunk costs are retrospective costs that have already been incurred and cannot be recovered.
- Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken .
- The sunk cost is distinct from economic loss.
- The sunk cost may be used to refer to the original cost or the expected economic loss.
-
- Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs.
- This is not the cost of goods), H = annual holding cost per unit (also known as carrying cost or storage cost) (warehouse space, refrigeration, insurance, etc., usually not related to the unit cost).
- Total Cost = purchase cost + ordering cost + holding cost
- Purchase cost: This is the variable cost of goods: purchase unit price × annual demand quantity.
- Ordering cost: This is the cost of placing orders: each order has a fixed cost S, and we need to order D/Q times per year.