The managers of Downtown Realty are considering remodeling plans for an old buil
ID: 2636794 • Letter: T
Question
The managers of Downtown Realty are considering remodeling plans for an old building the firm owns and wants to restore. The building was purchased last year for $890,000. The plan is to create an executive resort and conference centre at an estimated cost of $3.6 million. The estimated present value of the future income from this centre is $5.9 million. Of course, the firm could take the cash offer of $1.1 million it just received for the building and sell the building as is. Which one of the following values represents the opportunity cost of the remodeling project?
Explanation / Answer
The managers of Downtown Reality are considering remodeling plans for an old building the firm owns and wants to restore. The building was purchased last year for $890,000. The plan is to create an executive resort and conference center at an estimated cost of $3.6 million. The estimated present value of the future income from this centre is $5.9 million. Of course, the firm could take the cash offer of $1.1 million it just received for the building as is. Which one of the following represents the opportunity cost fo the remodeled project?
$0
$890.000
$1,100,000-----------answer
$3,600,000
$5,900,000
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