Question

To quantify a solution in a selling situation, salespeople estimate the return a buyer would have earned from a different use of the same investment capital. This return is known as the

A) Opportunity cost
B) Net present value
C) Return on investment (ROI)
D) Profit margin

Answer 1

The return that a buyer could have earned from a different investment is known as the opportunity cost. The correct answer is option a.

Step-by-step explanation:

In the context of a selling situation, when salespeople want to quantify a solution, they often estimate the return a buyer would have earned from a different use of the same investment capital. This estimated return reflects the financial benefit that is foregone by choosing one investment over another. In finance, this foregone benefit is known as the opportunity cost.

For instance, a financial investor may decide on an interest rate that not only reflects the opportunity cost of alternative investments but also includes a risk premium in case the current investment appears riskier. This means that if the investor has picked an investment with a 15% interest rate when safer investments are offering lower rates, the investor has included a risk premium to compensate for the additional risk taken.

It is important for businesses and governments alike to consider opportunity costs. When making decisions about investments, such as physical capital investments or public policy changes, entities compare the present costs to the present discounted value of future benefits using a similar analytical approach based on opportunity costs.