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1 February, 07:13

Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is

A) $0.

B) $40,000.

C) $45,000.

D) $90,000.

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  1. 1 February, 11:09
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    annual opportunity cost = $45,000

    so correct option is C) $45,000

    Explanation:

    given data

    earns = $40,000 per year

    invest savings = $50,000

    rate of return = 10%

    to find out

    annual opportunity cost

    solution

    we get here annual opportunity cost that is express as

    annual opportunity cost = earns + (rate of return * invest savings) ... 1

    put here value we get

    annual opportunity cost = $40,000 + (10% * $50,000)

    annual opportunity cost = $45,000

    so correct option is C) $45,000
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