Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year. If alternative investments that yield a 9% return are available, the opportunity cost of the purchase of the land is

Question

Quizplus · Accepted Answer

The opportunity cost is the return foregone by not investing in the alternative option. Here, the alternative investment yields a 9% return on $300,000, which is $300,000 * 9% = $27,000.

Jarrett Company Is Considering a Cash Outlay of $300,000 for the Purchase