Gavin has decided to start his own snow removal business.To purchase the necessary equipment,Gavin withdrew $2,000 from his savings account,which was earning 3% interest,and borrowed an additional $4,000 from the bank at an interest rate of 7%.What is Gavin's annual opportunity cost of the financial capital that has been invested in the business?

Question

Quizplus · Accepted Answer

To calculate the annual opportunity cost, we need to find the total interest that Gavin would have earned if he had not invested his savings into the business.

Interest earned on savings: 
$2,000 x 3% = $60

Next, we need to find the interest that Gavin would need to pay on the bank loan:

Interest paid on loan: 
$4,000 x 7% = $280

Therefore, the total annual opportunity cost is:

$60 + $280 = $340

So, the correct answer is C.

Gavin Has Decided to Start His Own Snow Removal Business