Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments that yield a 12% return are available, the opportunity cost of the purchase of the land is
A) $35,000
B) $30,000
C) $250,000
D) $4,200

Question

Quizplus · Accepted Answer

The opportunity cost of purchasing the land is the income sacrificed by not investing in the alternative investments. The annual income from leasing out the land is $35,000. The alternative investments offer a 12% return, which is equivalent to $30,000 ($250,000 x 0.12). Therefore, the opportunity cost of purchasing the land is $30,000.

Lara Technologies Is Considering a Cash Outlay of $250,000 for the Purchase