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? a. $0 (the land is a sunk cost).
b. -$150,000.
c. $250,000.
d. $100,000.
e. -$100,000.

Answer 1

Answer:

e. -$100,000.

Explanation:

Data provided in the question

Purchase value of property = $250,000

The current market value of the property = $100,000

So, by considering the above information, the amount that to be considered as an opportunity cost is the salvage value i.e $100,000 but the same is not be taken for the new facility and recognized as a cash flows