When calculating a tax rebate, the aforementioned notion considers opportunity costs. Opportunity cost is the benefit that was forfeited because a specific alternative wasn't chosen.
Opportunity cost analysis plays a big role in determining a company's capital structure. A firm must pay expenses when issuing both debt and equity capital to compensate lenders and shareholders for the risk of their investments, but each has an opportunity cost as well.
For instance, funds used to settle debts cannot be used to invest in stocks or bonds that have the potential to yield a profit. The company must decide if growing through debt leverage will produce larger profits than it could get through investing.
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