Question

A skilled nursing–facility chain is considering building a new facility on a piece of property that it currently owns. The property was purchased five years ago for $250,000 and could be sold now at a current market value of $100,000. When estimating the cash flows for the new facility, what amount should be included to recognize the opportunity cost of using the land for the proposed project?

a. $0 (the land is a sunk cost)
b. -$150,000
c. $250,000
d. $100,000
e. -$100,000

Answer 1

Answer:

correct option is e. -$100,000

Explanation:

given data

purchase time period = 5 year

property purchased = $250,000

current market value = $100,000

solution

we know property is 5 year old so here salvage value of  building that would be realized when there is not engaged in any new project that shall be taken as a opportunity cost

so that  it will be taken as here cash outflows

so correct option is e. -$100,000