Question

Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian’s savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?

$30,600
$55,600
$50,000
$75,600

Answer 1

the opportunity cost will be $30,600

Step-by-step explanation:

Investment 40,000

50,000 revenue

(15,000) supplies cost

35,000 operating income

(400) interest expense 20,000 x 2%

34,600 net income

Opportuniy Cost:

30,000 (he would just take one job, so we must use the higher value)

600 interest revenue of the saving 20,000 x 3%

30,600

Economic gain 4,000