Scenario 13-2
Joe wants to start his own business.The business he wants to start will require that he purchase a factory that costs $500,000.To finance this purchase, he will use $200,000 of his own money, on which he has been earning 10 percent interest per year.In addition, he will borrow $300,000, and he will pay 12 percent interest per year on that loan.
-Refer to Scenario 13-2.For the first year of operation,what is the opportunity cost of purchasing the factory

Question

Quizplus · Accepted Answer

The opportunity cost includes the foregone interest Joe could have earned on his $200,000 (10% of $200,000 = $20,000) and the interest he has to pay on the borrowed $300,000 (12% of $300,000 = $36,000). The total opportunity cost is $20,000 + $36,000 = $56,000.

Scenario 13-2 Joe Wants to Start His Own Business.The Business He Wants