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      Question

      Which of the following is a measure of the discount

      factor used to appraise capital investment decisions?
      A LIBOR rate Correct Answer Incorrect Answer
      B The current inflation rate Correct Answer Incorrect Answer
      C The current G-sec rate Correct Answer Incorrect Answer
      D The opportunity cost of capital of business Correct Answer Incorrect Answer
      E The opportunity cost of capital of all businesses in the same industry Correct Answer Incorrect Answer

      Solution

      Opportunity cost is the potential loss from a missed opportunity—the result of choosing one alternative and forgoing another. For example, the opportunity cost of holding money rather than buying bonds or some other interest-bearing asset is the nominal interest that would otherwise be earned.

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