If the going rate of interest were 10 percent and the expected profit rate were 18 percent,then the opportunity cost of a firm carrying out a $100,000 project for one year with its own funds would be

Question

Quizplus · Accepted Answer

The opportunity cost is equal to the amount that the firm could have earned if they had invested in an alternative project with the same level of risk. In this case, the alternative project would be investing the $100,000 in a risk-free asset that generates a return of 10%.

The annual return from investing $100,000 at 10% interest would be $10,000. Therefore, the opportunity cost of the firm carrying out the $100,000 project with its own funds is $10,000. As a result, the best choice is C.

If the Going Rate of Interest Were 10 Percent and the Expected