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. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?
A)$3,000
B)$6,000
C)$15,000
D)$18,000

Question

Quizplus · Accepted Answer

Korie's annual opportunity cost is the amount of interest she could earn if she had instead kept her money in the bank.

Interest earned on the $200,000 she did use:
$200,000 x 0.03 = $6,000

Interest she could have earned on the $200,000 she borrowed:
$200,000 x 0.06 = $12,000

Total annual opportunity cost:
$6,000 + $12,000 = $18,000

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