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Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year.



Refer to Scenario 13-1. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?

Respuesta :

Answer:

the the  Korie's annual opportunity cost of purchasing the factory is $18,000

Explanation:

The computation of the  Korie's annual opportunity cost of purchasing the factory is shown below:

Opportunity cost =

foregone interest on his money + interest paid on borrowed money

 = (0.03) of ($200,000) + (0.06) of ($200,000)

= $6,000 + $12,000.

 = $18,000

Hence, the the  Korie's annual opportunity cost of purchasing the factory is $18,000

The above formula should be used  

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