A business is considering a cash outlay of $400,000 for the purchase of land, which it could lease for $40,000 per year. If alternative investments are available which yield a 21% return, the opportunity cost of the purchase of the land is:
A) $84,000
B) $40,000
C) $44,000
D) $ 8,400

Question

Quizplus · Accepted Answer

The opportunity cost is the return foregone from the next best alternative investment. Here, the alternative investment yields 21% on $400,000, which is $84,000.

A Business Is Considering a Cash Outlay of $400,000 for the Purchase