Question

Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is

A) $0.

B) $40,000.

C) $45,000.

D) $90,000.

Answer 1

annual opportunity cost = $45,000

so correct option is C) $45,000

Step-by-step explanation:

given data

earns = $40,000 per year

invest savings = $50,000

rate of return = 10%

to find out

annual opportunity cost

solution

we get here annual opportunity cost that is express as

annual opportunity cost = earns + ( rate of return × invest savings ) .........1

put here value we get

annual opportunity cost = $40,000 + ( 10% × $50,000 )

annual opportunity cost = $45,000

so correct option is C) $45,000