Gloria has decided to start her own snow removal business.To purchase the necessary equipment,Gloria withdrew $2,000 from her savings account,which was earning 3% interest,and borrowed an additional $4,000 from the bank at an interest rate of 7%.What is Gloria's annual opportunity cost of the financial capital that has been invested in the business?

Question

Quizplus · Accepted Answer

To calculate the opportunity cost, we need to find the total interest that Gloria would have earned if she had kept the $2,000 in her savings account instead of investing it in her snow removal business.

Interest earned on the $2,000 at 3% = $2,000 x 0.03 = $60

We also need to find the interest paid on the loan of $4,000 at 7%.

Interest paid on the $4,000 at 7% = $4,000 x 0.07 = $280

Therefore, the total opportunity cost is the sum of the lost interest and the interest paid on the loan:

Opportunity cost = $60 + $280 = $340

Hence, the answer is choice C.

Gloria Has Decided to Start Her Own Snow Removal Business