Question

A business is considering a cash outlay of $250,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:

Answer 1

Answer: $45000

Step-by-step explanation:

The opportunity cost refers to the cost of what an economic entity forgoes when an alternative choice is taken. Based on the information given in the question, the opportunity cost will be the loss on Interest on investment and this will be:

= 18% × $250,000

= 0.18 × $250,000

= $45000

The opportunity cost of the purchase of the land is $45000