What is opportunity cost and why is it an important concept

Subject: Business    / Accounting
Question

1. What is opportunity cost and why is it an important concept in the capital budgeting process? The opportunity cost concept applies to almost every financial decision we make as individuals. Can you give an example from your own experience?

2. What is capital rationing from the perspective of capital budgeting?

3. Give an example of a strength and a weakness of the accounting rate of return approach.

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