Opportunity Cost and Sunk Cost

Opportunity cost and sunk cost

Difference between Sunk Cost and opportunity Cost

Basically, sunk cost is money that has been spent already. On the other hand, opportunity cost is certain amount of money from which you are not able to get returns. Due to investment of capital inappropriate manner, return is not received.

Sunk Cost Example

If 1000 shares are bought at the price of $ 10 each then it can be known as sunk cost. Investment of $ 10,000 is noticed. To get return from the investment, it becomes necessary to sell the stocks. Profit can be acquired only if the stocks are sold at the cost price or above.

Opportunity cost Example

In similar situation, opportunity cost can be received by spending the money elsewhere. By selling $ 1000 shares of certain company at $ 12, you can get profit of $ 2 on each share. So, the net profit can be about $ 2000. By purchasing shares from other company instead of above company, more profit can be made at the same time. Through a fresh prospect, more benefits can be earned.

Simply, it can be said that sunk cost is an investment that clogs the capital at a certain point. Investors are generally deprived completely from taking advantage from an opportunity. Financial decisions must be taken by considering both the concepts adequately. Judgment about selling and holding an item must be taken after a lot of thought on different kinds of factors.

Investment may be sunk. However, opportunities can be found from other platform. An excellent return can be expected from it on the occasion. Therefore, beneficial results can be noticed by holding investment for certain amount of time. Fruitful results can be found from an investment with effective decision.

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