Implicit Rental Rate

AAA

DEFINITION of 'Implicit Rental Rate'

The opportunity costs that a firm incurs as a result of using their own assets for ongoing operations instead of other alternative uses. The implicit rental rate can be either greater than or less than the firm's cost of capital.

INVESTOPEDIA EXPLAINS 'Implicit Rental Rate'

In the event that the implicit rental rate is lower than the firm's cost of capital, then the firm is not likely to be in business for very long. This is because the firm's cost to operate its assets, as measured by its cost of capital, is greater than the firm's best alternative use for those assets.

RELATED TERMS
  1. Cost Of Capital

    The required return necessary to make a capital budgeting project, ...
  2. Economic Value Added - EVA

    A measure of a company's financial performance based on the residual ...
  3. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  4. Economics

    A social science that studies how individuals, governments, firms ...
  5. Weighted Average Cost Of Capital ...

    A calculation of a firm's cost of capital in which each category ...
  6. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
RELATED FAQS
  1. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  2. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  3. How does neoclassical economics relate to neoliberalism?

    While it may be likely that many neoliberal thinkers endorse the use of (or even emphasize) neoclassical economics, the two ... Read Full Answer >>
  4. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  5. How is abatement cost accounted for on financial statements?

    Abatement costs are accounted for on a company's financial statements through increases in either cost of goods sold or operational ... Read Full Answer >>
  6. According to the neoclassical growth theory, what factors influence the growth of ...

    The neoclassical growth theory builds five major variables into its time-sensitive production formula. The first is total ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Bonds & Fixed Income

    Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.
  3. Options & Futures

    All About EVA

    Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added.
  4. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  5. Economics

    Calculating Income Elasticity of Demand

    Income elasticity of demand is a measure of how consumer demand changes when income changes.
  6. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  7. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  8. Economics

    Understanding Diseconomies of Scale

    Diseconomies of scale is the point where a business no longer experiences decreasing costs per unit of output.
  9. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  10. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!