A company purchased land ten years ago for $250,000.00, but never built the factory that was originally intended for the property. The property currently has a value of $750,000.00. Assuming a 35% tax rate, what is the opportunity cost of using the property?

Question

Quizplus · Accepted Answer

The opportunity cost of using the property is the current value of the property ($750,000.00) minus the purchase price ($250,000.00), which equals $500,000.00. However, the question asks for the opportunity cost after considering a 35% tax rate. The tax on the gain ($500,000.00) would be $500,000.00 * 35% = $175,000.00. Therefore, the net opportunity cost after tax would be $500,000.00 - $175,000.00 = $325,000.00.

A Company Purchased Land Ten Years Ago for $250,000