Differences between opportunity cost and financial cost.

Differences between opportunity cost and financial cost.

Opportunity cost is the cost of a foregone alternative. If you chose one alternative over another, then the cost of choosing that alternative is an opportunity cost. The term opportunity cost is often used in finance and economics when trying to choose one investment, either financial or capital, over another.

The difference in return between an investment one makes and another that one chose not to make. This may occurin securities trading or in other decisions. For example, if a person has $10,000 to invest and must choose betweenStock A and Stock B, the opportunity cost is the difference in their returns. If that person invested $10,000 in Stock Aand received a 5% return while Stock B makes a 7% return, the opportunity cost is 2%. One way of conceptualizingopportunity cost is as the amount of money one could have made by making a different investment decision.Importantly, opportunity cost is not a type of risk because there is not a chance of actual loss.

The Financing Cost (FC), also known as the Cost of Finances (COF), is the cost and interest and other charges involved in the borrowing of money to build or purchase assets. The total expenses associated with securing finance for a project or business arrangement.