Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is
A)$27,000
B)$36,000
C)$9,000
D)$72,000

Question

Quizplus · Accepted Answer

The opportunity cost of purchasing the land is the return Jarrett Company would forgo by not investing the $300,000 in the alternative investments that yield a 9% return. Calculating 9% of $300,000 gives $27,000, which is the opportunity cost of the purchase.

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