Asked by Diana Mitrea Stoicescu on Jun 08, 2024
Verified
A company purchased land ten years ago for $250,000.00, but never built the factory that was originally intended for the property. The property currently has a value of $750,000.00. Assuming a 35% tax rate, what is the opportunity cost of using the property?
A) $750,000.00
B) $487,500.00
C) $325,000.00
D) $262,500.00
Opportunity Cost
What a business, investor, or individual forgoes in benefits when they decide on one choice over a different one.
Tax Rate
The percentage at which an individual or corporation is taxed by the government on their income or profits.
Market Value
The present cost at which a service or asset is available for purchase or sale in the market.
- Clarify the idea of opportunity cost as it pertains to capital allocation decisions.
Verified Answer
KA
Kelsie AdamsJun 09, 2024
Final Answer :
C
Explanation :
The opportunity cost of using the property is the current value of the property ($750,000.00) minus the purchase price ($250,000.00), which equals $500,000.00. However, the question asks for the opportunity cost after considering a 35% tax rate. The tax on the gain ($500,000.00) would be $500,000.00 * 35% = $175,000.00. Therefore, the net opportunity cost after tax would be $500,000.00 - $175,000.00 = $325,000.00.
Learning Objectives
- Clarify the idea of opportunity cost as it pertains to capital allocation decisions.
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