The managers of H.R Construction are considering remodeling plans for an old building the firm currently owns.The building was purchased eight years ago for $689,000.Over the past eight years,the firm rented out the building and used the rent to pay off the mortgage.The building is now owned free and clear and has a current market value of $898,000.The firm is considering remodeling the building into a conference centre and sandwich bar at an estimated cost of $1.7 million.The estimated present value of the future income from this centre is $2.9 million.Which one of the following defines the opportunity cost of the remodeling project?

Question

Quizplus · Accepted Answer

The opportunity cost of the remodeling project is the value of the next best alternative that must be given up in order to undertake the project. In this case, the current market value of the building represents the value of the building in its current use, which is as a rental property. Therefore, the opportunity cost of the remodeling project is the potential income that could be earned by continuing to rent out the building in its current state, which is represented by the current market value of the building. The other options (A, B, D, and E) do not accurately represent the opportunity cost of the project.

The Managers of H