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From an accounting perspective, a sunk cost could also refer to the initial outlay to purchase an expensive piece of heavy equipment, which might be amortized over time, but which is sunk in the sense that you won't be getting it back.An opportunity cost would be to buy a piece of heavy equipment with an expected return on investment (ROI) of 5% or one with an ROI of 4%.Assume the company in the above example foregoes new equipment and invests in the stock market instead.If the selected securities decrease in value, the company could end up losing money rather than enjoying the expected 12 percent return.In other words, by investing in the business, you would forgo the opportunity to earn a higher return.Opportunity cost analysis also plays a crucial role in determining a business's capital structure.
Assume that, given a set amount of money for investment, a business must choose between investing funds in securities or using it to purchase new equipment.No matter which option the business chooses, the potential profit it gives up by not investing in the other option is the opportunity cost.
