A business is considering a cash outlay of $500,000 for the purchase of land, which it intends to lease for $90,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is:
A) $60,000.
B) $49,200.
C) $90,000.
D) $30,000.

Question

Quizplus · Accepted Answer

The opportunity cost is the return foregone by not investing the $500,000 in the alternative investment. At a 12% return, the opportunity cost is $500,000 * 0.12 = $60,000.

A Business Is Considering a Cash Outlay of $500,000 for the Purchase