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INTEREST ON EQUITY CAPITAL AS AN EX POST COST: A REPLY
Author(s) -
Amey Lloyd R.
Publication year - 1982
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1982.tb00979.x
Subject(s) - economics , argument (complex analysis) , equity (law) , cost of capital , implicit cost , opportunity cost , cost of equity , positive economics , microeconomics , actuarial science , financial economics , total cost , law , political science , profit (economics) , biochemistry , chemistry
It is argued by Zafiris that the conceptual framework relevant for decisionmaking is also relevant for performance evaluation. He uses this argument to justify the charging of interest on equity capital in determining income. Implicit opportunity costs are thus included in both observed results and in the standard against which performance is measured, revalued in the former case. This argument, in both its general and particular forms, involves two principle misconceptions: about the significance and purpose of implicit opportunity costs, and about what Buchanan means by “what might have been”, which in fact corresponds to Demski's ex post performance measure.