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Answer :
Final answer:
The opportunity cost of purchasing the land is $37,740, calculated by taking the 17% return rate an alternative investment would yield on the $222,000 cash outlay.
Explanation:
To calculate the opportunity cost of purchasing the land instead of investing the money elsewhere, we need to compare the potential lease income from the land with the returns from the alternative investment. The cash that would be used to purchase the land could yield a 17% return if invested. Thus, we calculate the opportunity cost by taking 17% of the total cash outlay of $222,000.
The opportunity cost is calculated as follows:
Opportunity Cost = Total Cash Outlay × Return Rate
= $222,000 × 0.17
= $37,740
Therefore, the opportunity cost of purchasing the land, in terms of forgone investment returns, is $37,740.
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