skilled nursing–facility chain is considering building a new facility on a piece
ID: 2461830 • Letter: S
Question
skilled nursing–facility chain is considering building a new facility on a piece of property that it currently owns. The property was purchased five years ago for $250,000 and could be sold now at a current market value of $100,000. When estimating the cash flows for the new facility, what amount should be included to recognize the opportunity cost of using the land for the proposed project?
skilled nursing–facility chain is considering building a new facility on a piece of property that it currently owns. The property was purchased five years ago for $250,000 and could be sold now at a current market value of $100,000. When estimating the cash flows for the new facility, what amount should be included to recognize the opportunity cost of using the land for the proposed project?
Given Answer: -$150,000 Correct Answer: -$100,00Can you explain to me why -100,000 is correct vs the Negative 150,000
Explanation / Answer
Current market value of $100000 will be the opportunity cost for the proposed project , because opportunity cost is the loss of return from the non selected project or the project which has not been selected. It also provide cost benefit (market value of old project is deducted from the new project)
And the return will be considered on the basis of market value which is $100000 .New facility is being considered on the Piece of property( considered as opportunity cost)
opportunity cost = -100000
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