Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250.

Question

Quizplus · Accepted Answer

The opportunity cost of capital is the potential earnings from the next best investment. Here, it should be calculated based on the interest she could have earned on her savings and the cost of the loan, not a fixed amount like $250.

Anna Borrows $5,000 from a Bank and Withdraws $1,000 from Her