A business is considering a cash outlay of $880,000 for the purchase of land, which it intends to lease for $200,000 per year.If alternative investments are available that yield a 15% return, the opportunity cost of the purchase of the land is:
A) $132,000.
B) $102,000.
C) $200,000.
D) $175,000.

Question

Quizplus · Accepted Answer

The opportunity cost of an investment is the return foregone by not investing in the next best alternative. In this case, the alternative investment yields a 15% return. Therefore, the opportunity cost of purchasing the land is 15% of $880,000, which is $132,000 (0.15 * $880,000).

A Business Is Considering a Cash Outlay of $880,000 for the Purchase