Question

A(n) ____ is the return on the best alternative use of an asset, the highest return that will not be earned if funds are not invested in a particular project.

a. opportunity cost

b. incremental cash flow

c. sunk cost

d. externality

Answer 1

Option a, opportunity cost refers to the return on the best alternative use of an asset, the highest return that will not be earned if funds are not invested in a particular project.

Option b, incremental cash flow refers to the cash flow generated by undertaking a project.

Option c, sunk cost refers to a cost which is already incurred and which cannot be recovered.

Option d, externality refers to the cost incurred or received by a third party.

Hence, the answer is option a.

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