Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease out for $40,000 per year. If alternative investments that yield a 15% return are available, the opportunity cost of the purchase of the land is

Question

Quizplus · Accepted Answer

The opportunity cost is the return Farris Company gives up by investing in the land instead of the alternative investment. The alternative investment yields a 15% return on $500,000, which is $500,000 * 0.15 = $75,000.

Farris Company Is Considering a Cash Outlay of $500,000 for the Purchase