Deep Woods Coal Mines owns a shallow mine which is currently sitting idle. The property, which includes the mine, was originally purchased for $18.5 million. The property was valued at $6.8
Million when mining ceased and is currently valued at $7.1 million. If the company would spend
$329,000, they could convert this unused mine into an underground storage facility for campers,
Vehicles, and boats. The company estimates that storage fees of $280,000 can be generated per
Year which would net the ﬁrm an annual net income of $163,001. What is the opportunity cost
Associated with the storage facility project? (Answer in millions)

Question

Quizplus · Accepted Answer

The opportunity cost associated with the storage facility project is the value of the property if it were not used for the project. Since the property is currently valued at $7.1 million and the project would cost $329,000, the opportunity cost is $7.1 million. Therefore, the best choice is B.

Deep Woods Coal Mines Owns a Shallow Mine Which Is