Question

Advantages of using the opportunity cost of capital as a discount rate are:

	1) it is easily understood by most investors.
	2) it permits direct comparison between projects of the same general risk category.
	3) it permits risk analysis to be incorporated into policy guidelines. *d all of the above.

Answer 1

Option (d) is correct

All the options given are correct.

Opportunity cost is the cost of alternative uses of money.

Option (a) is correct as opportunity cost is easy to understand. On can easily find out the cost of other alternative.

Option (b) is correct as since opportunity cost represents cost of alternative investment and that alternative investment usually represents the investment of same risk category, so it becomes easier to compare the two investments or projects.

Option (c) is correct as with alternative uses of money or opportunity cost of capital, risks of all the projects or investments can be incorporated into policy guidelines.