FIRST PRINCIPLES OF VALUATION

Opportunity cost is simply the best alternative financial opportunity that exists, at the same risk level as the one under consideration. In the auto example, it is the 12% certain, that he can earn on the loan. Therefore, the appropriate discount rate is 12%. PV = $70,000/(1+0.12) = $62,500 vs. the $60,000 that he must pay for the car today. ................
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