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 are available that yield a 15% return,the opportunity cost of the purchase of the land is
A) $75,000
B) $40,000
C) $44,000
D) $7,500

Question

Quizplus · Accepted Answer

The opportunity cost of purchasing the land is the return Farris Company is foregoing by not investing the $500,000 in the alternative investments that yield a 15% return. Therefore, the opportunity cost is 15% of $500,000, which is $75,000.

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