A firm has a general-purpose machine, which has a book value of $300,000 and is worth $500,000 in the market. If the tax rate is 21 percent, what is the opportunity cost of using the machine in a project?
A)$500,000
B)$458,000
C)$300,000
D)$200,000

Question

Quizplus · Accepted Answer

The opportunity cost of using the machine in a project is the market value of the machine, which is $500,000, minus the tax on the sale of the machine, which is 21% of the capital gain ($200,000), or $42,000. Therefore, the opportunity cost is $458,000.

A Firm Has a General-Purpose Machine, Which Has a Book