Question

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

Answer 1

Answer:

$30,000

Explanation:

Lara Technologies could invest the 250,000 in exchange of a 12% return, therefore, the opportunity cost would be:

$250,000 x 12% = $30,000

$30,000 dollars in returns is what Lara Technologies would give up if it purchased the land instead of investing the money.