Question

A company had a choice between Project X and Project Y. The net present value of Project X is $1,000,000, and the net present value of Project Y is $750,000. The company chose Project X. What is the opportunity cost of that decision?

Answer 1

Answer:

The opportunity cost of that decision is - $250,000

Explanation:

For computing the opportunity cost, we have to use the formula of opportunity cost which is shown below:

= Return of project which is not chosen - the return of a chosen project

= $750,000 - $1,000,000

= - $250,000

Since in the question, it is given that the chosen project is X so we write the project X amount in the formula and the not chosen project of-course is Y.

Hence, the opportunity cost of that decision is - $250,000