A business is considering a cash outlay of $200,000 for the purchase of land, which it could lease for $35,000 per year.If alternative investments are available that yield an 18% return, the opportunity cost of the purchase of the land is:
A) $35,000.
B) $36,000.
C) $1,000.
D) $37,000.

Question

Quizplus · Accepted Answer

The opportunity cost is the return foregone by not investing in the alternative option. Here, an 18% return on $200,000 would be $36,000 ($200,000 * 0.18), which is the opportunity cost of purchasing the land instead of investing in the alternative.

A Business Is Considering a Cash Outlay of $200,000 for the Purchase