When a firm is considering whether to buy a new piece of equipment with retained earnings,the amount of interest that could be earned on that money is an explicit cost and should be treated as such.

Question

Quizplus · Accepted Answer

The amount of interest that could be earned on the money if it were not spent on the new equipment is considered an opportunity cost, which is an implicit cost, not an explicit cost. Explicit costs involve direct monetary outlay.

When a Firm Is Considering Whether to Buy a New