Concept of Opportunity Cost

• Opportunity Cost: The value of the next best alternative that is forgone when making a decision.

Explanation of Choices

• Two options presented:

  1. Take $1,000,000 right now.

  2. Wait for a chance to receive $1,000,000 later.

Analyzing the Options

• Immediate Gain:

  • Taking the money now provides immediate financial benefit and certainty.

  • This option eliminates the risk of the future option not materializing.

• Future Possibility:

  • The other option implies waiting for a potentially better deal or opportunity (more money in the future).

  • However, this comes with uncertainty and risks associated with time value of money.

Considerations in Decision Making

• Time Value of Money:

  • Money available today is worth more than the same amount in the future due to potential earning capacity.

• Risk Assessment:

  • Evaluating the risk involved with waiting. Factors such as inflation, investment returns, and personal financial goals should be considered.

• Personal Values:

  • Individual priorities can affect choice, including urgency for cash versus potential for higher reward.