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    Opportunity cost : explained

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    U.S. Airways owns a piece of land near the Pittsburgh International Airport. The land originally cost U.S. Airways 375,000$. The Airline is considering building a new training center on this land. U.S. Airways has determined that the proposal to build new facility is acceptable if the original cost of the land is used in the analysis,but the proposal does not meet the airlines project acceptance criteria if the land cost is above 850,000$. A developer has recently offered U.S. Airways 2.5 million for the land. Should U.S. Airways build the training facility at this locations? (Ignore taxes).

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    Solution Preview

    The training facility should not be built at this location. In a capital budgeting exercise, all opportunity costs should be taken into account. ...

    Solution Summary

    The solution explains the concept of opportunity cost in capital budgeting decision.