Scenario 12-2
Chelsea wants to start her own Christmas ornament business.She can purchase a suitable factory that costs $100,000.Chelsea currently has $150,000 in the bank earning 3 percent interest per year.
-Refer to Scenario 12-2.Suppose Chelsea purchases the factory using $50,000 of her own money and $50,000 borrowed from a bank at an interest rate of 6 percent.What is Chelsea's annual opportunity cost of purchasing the factory?

Question

Quizplus · Accepted Answer

Chelsea's annual opportunity cost includes the interest she could have earned on the $50,000 she used to buy the factory and the interest she has to pay on the loan.

Interest earned on $50,000 at 3% = $1,500
Interest paid on $50,000 loan at 6% = $3,000
Total annual opportunity cost = $1,500 + $3,000 = $4,500

Therefore, the answer is choice letter C.

Scenario 12-2 Chelsea Wants to Start Her Own Christmas Ornament Business.She Can