A business is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:
A) $54,000
B) $36,000
C) $18,000
D) $72,000

Question

Quizplus · Accepted Answer

The opportunity cost is the return foregone from the next best alternative investment. Here, the alternative investment yields 18% on $300,000, which is $54,000.

A Business Is Considering a Cash Outlay of $300,000 for the Purchase