- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 3. Capital Allocation Principles and Pitfalls
CFA Practice Question
A firm owns a building with a book value of $100,000 and a market value of $250,000. If the building is utilized for a project, then the opportunity cost ignoring taxes, is ______.
A. $100,000
B. $150,000
C. $250,000
User Contributed Comments 8
| User | Comment |
|---|---|
| zack | ?? can someone explain ? |
| examinee | The opportunity cost of using the building is 250000 and hence that is what we use. Alternatively it could have been sold for 250,000. |
| Cata | Don't agree. The opportunity cost should be the actuals revenue the building provides, not the sale value, as the problem doesn't specify the imminent sale of the building, or that the firm could either use or sale. |
| mtcfa | The immediate opportunity cost is the $250k. The answer is correct. |
| mansi | opportunity cost is the money earned on the next best investment |
| sunilkumar | opportunity cost is nothing but Best oppurtunity foregone. so 2,50,000 |
| phillyj | 100,000 is a sunk cost. So its not included in the decision. |
| ascruggs92 | Cata, although imminent sale is not specified, the fair market value is, by definition, what it can be sold for. Opportunity cost is simply the next best use of an asset. Since we are aware that the building can be sold for its FMV, that is what has to be used for the opportunity costs. |