Question

A 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?
Can someone explain why it is -$100,000 vs $-150,000

Answer 1

Based on the value of the land, the recognized opportunity cost for the project is -$100,000.

What is the opportunity cost of the land?

When a new project is about to be embarked on, the relevant value of the resources to be used is the current value of the resource.

In this case, the current value of the land is $100,000 which will therefore be recorded as the opportunity cost. The reason it is negative is that it represents a loss on the original purchase.

Find out more on opportunity cost at brainly.com/question/1549591.

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