Opportunity cost of finance


I) Read the statements below and write your comments to it, need to support your writing (references).

1. Opportunity cost of finance - The cost of capital is an opportunity cost of finance, because it is the minimum return which an investor requires.

2. The cost of capital has two aspects to it - The cost of funds that a company raises and uses, and the return that investors expect to be paid for putting funds into the company.

II) Problems. Explain, also do calculations

1. If a firm's earnings per share grew from $1 to $2 over a 10-year period, the total growth would be 100%, but the annual growth rate would be less than 10%. True of false? Explain.

2. Would you rather have a savings account that pays 5% interest compounded semi-annually or one that pays 5% interest compound daily? Explain.

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Finance Basics: Opportunity cost of finance
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