What is an opportunity cost rate? How is this rate used in discounted cash flow

Question

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a time line? Is the opportunity rate a single number that is used all situations?

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Explanation / Answer

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a time line? Is the opportunity rate a single number that is used all situations?

Opportunity cost rate is rate of return that investor could earned on an alternative investment of similar risk.

An opportunity cost is the difference in return between an investment that has chosen for investment and one that is inevitably gave up. For example, if a person invests in equity and get 3% return over a period of time then by investing his/her money on stock that person gave up the opportunity of another investment. Let

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