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Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease for $40,000 per year. If alternative investments are available that yield a 15% return, the opportunity cost of the purchase of the land is

Respuesta :

Answer: $75,000

Explanation:

Opportunity cost is what an individual, firm or the government has to forgo when another different choice is made.

From the question, we are informed that Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease for $40,000 per year and that alternative investments are available that yield a 15% return.

Then the opportunity cost of the purchase of the land will be:

= $500,000 × 15%

= $500,000 × 0.15

= $75,000

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