Question

Scenario 13-2 Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-2. Suppose Chelsea purchases the factory using $50,000 of her own money and $50,000 borrowed from a bank at an interest rate of 6 percent. What is Chelsea's annual opportunity cost of purchasing the factory

Answer 1

The correct solution is "$4500".

Step-by-step explanation:

The given values are:

Factory costs,

= $100,000

Chelsea purchases the factory,

= $50,000

Chelsea borrowed,

= $50,000

According to the question,

Throughout the interest rate given up, the opportunity cost will be:

=
`3 \ percent* 50000+6 \ percent* 50000`

=
`1500+3000`

=
`4500` ($)