Asked by kevin fuller on Jun 09, 2024
Verified
Lara Technologies is considering a total cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is
A) $35,000
B) $30,000
C) $250,000
D) $4,200
Opportunity Cost
The benefit that is missed or given up when choosing one alternative over another.
Cash Outlay
The total amount of money spent on a particular purchase or investment.
Alternative Investments
Investments in asset classes other than stocks, bonds, and cash, such as real estate, hedge funds, or commodities.
- Gain insight into the importance of opportunity costs in making financial decisions.
Verified Answer
YS
Yuvraj SinghJun 12, 2024
Final Answer :
B
Explanation :
The opportunity cost is the return foregone by not investing the $250,000 at the alternative rate of 12%. Therefore, the opportunity cost is 12% of $250,000, which equals $30,000.
Learning Objectives
- Gain insight into the importance of opportunity costs in making financial decisions.