# cost of capital,its components

Please help answer the following question. Provide at least 200 words in the solution. Provide step by step calculations in the answer.

1. Why would the cost of capital be considered an opportunity cost?

2. Why is the cost of capital measured on an after-tax basis? Would this affect any specific cost components?

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#### Solution Preview

Why would the cost of capital be considered an opportunity cost?

cost of capital means is the expected return from the investment.

opportunity cost means the cost of the next alternative foregone as a result of making investment.

The opportunity cost of capital is the expected return forgone by bypassing of other potential investment activities for ...

#### Solution Summary

The answer contains the reason for using opportunity cost as the cost of capital, components of cost of capital, rationale behind measuring cost of capital on after tax basis. It discusses why the cost of capital would be considered an opportunity cost and why the cost of capital is measure on an after-tax basis. The explanation is given in 239 words. Step by step calculations are also provided.