Opportunity Costs

Subject: Opportunity Costs and Their Significance

At the most elementary level, opportunity costs refer to the cost associated with applying an asset to one use as opposed to another use. By way of illustration of this concept, consider that a company had identified a need among the people comprising its primary target market that the company was capable of satisfying with the appropriate level of investment of resources. Further assume that, to accomplish such an objective would require the company to invest $1,000,000, and that projections indicated that the company could earn a before-tax return of 12 percent on the investment over a one-year period with a good probability that this level of return will continue over the following three years. At the same time, other investment opportunities also are available to the company which require approximately the same

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