Principles of Finance/Section 1/Chapter 2/Time Value of Money/Opportunity Cost

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The opportunity cost of capital is the amount of money you forego by investing money in one asset compared to another. For eg. If you have only two alternatives

        a) Invest in an asset which gives 5% return
        b) Invest in another asset which gives 6% return

Then obviously you will choose the second option. But in that case you wont be able to earn money on the first option. The 5% you forego is the opportunity cost of capital. Take another example: say you have a piece of land kept idle. If you make a ware house over it ,then you cannot use it for any other purpose. So, you miss the earning possibility from any alternative use. That is your opportunity cost.