Opportunity Cost
Short definition
Opportunity cost is the cash value of the best alternative forgone by committing a resource to this project. Land, cash, licences and management time are not free.
Detailed explanation
If the firm contributes land, the input is today’s net sale (or rental) cash, not historic cost. If idle cash is locked in, the alternative is treasury yield or debt paydown (after-tax Kd).
Cannibalisation is also an opportunity cost: the new product eats the old product’s cash. WACC is an average opportunity cost; if a resource is rationed, a shadow price sits above WACC.
Why it matters for the CFO
A file that says “the land is already ours, so the project is cheap” prices a saleable plot at zero and inflates NPV.
How to read it
Opportunity cost exists only if the alternative is actually available. Encumbered, legally tied or unsaleable assets can have near-zero opportunity cost.
Numerical example
Land on the books at 2 mn TL with 15 mn TL net sale value enters I₀ at 15 mn TL; 2 mn TL is sunk historic cost.
Related calculators
Güven Sayılgan’s writing on this topic
Challenges in Determining Company Value in Türkiye
In Türkiye, company valuation becomes more complex because of inflation, interest-rate and exchange-rate uncertainty, limited access to sector data, and an unde
3 min read
Read → FinansWhy Did Debt Become More Expensive than Equity in Some Periods in Türkiye?
In financial theory the cost of equity normally exceeds the cost of debt; in Türkiye, in tight-money episodes such as 2018 and 2023–25, the spot cost of new deb
6 min read
Read →Read these first
Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.