The Boat Works currently produces boat sails and is considering expanding its op

Question

The Boat Works currently produces boat sails and is considering expanding its operations to include awnings. The expansion would require the use of land the firm purchased three years ago at a cost of $197,000 that is currently valued at $209,500. The expansion could use some equipment that is currently sitting idle if $7,500 of modifications were made to it. The equipment originally cost $387,500 five years ago, has a current book value of $132,700, and a current market value of $139,000. Other capital purchases costing $520,000 will also be required. What is the value of the opportunity costs that should be included in the initial cash flow for the expansion project?

$537,200

$485,000

$329,700

$348,500

$425,000

Explanation / Answer

Opportunity cost = current value of land + current value of equipment

                                   = 209,500 + 139000

                                   = 348500

Option D is correct.

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