Scenario 13-1
Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year.
-Refer to Scenario 13-1. If Korie purchases the factory with her own money, what is the annual implicit opportunity cost of purchasing the factory?
A)$0
B)$3,000
C)$12,000
D)$15,000

Question

Quizplus · Accepted Answer

The annual implicit opportunity cost of purchasing the factory is the interest that Korie could have earned on her $400,000 if she did not spend it on the factory. Therefore, the annual implicit opportunity cost is 3% of $400,000, which is $12,000. Korie's best choice would be to purchase the factory with her own money since the annual implicit opportunity cost is less than the potential cost of borrowing money to purchase the factory.

Scenario 13-1 Korie Wants to Start Her Own Business Making Custom Furniture