Opportunity cost is defined as the loss incurred when one chooses one alternative over another.
In this scenario, the forgone option is full-time work along with other costs associated with that period when opting for schooling instead. Room and board expenses remain constant whether attending school or working full time, thus these are not factored in. Earnings from part-time work during school are deducted as they would have been earned during full-time employment.
Thus;
Opportunity cost = $20,000+$10,000+$1,000-$8,000 = $23,000
Answer:
$21,370.1071
Explanation:
The calculation for the present value of this perpetuity is as follows:
= Present value five years later + present value at the time of purchase
where,
The present value after five years is
= ($1,000) ÷ (1.04)^5
=$821.9271
Additionally, the present value at the purchase time is
= $821.9271 ÷ 4%
=$20,548.18
Thus, the total present value of the perpetuity is
=$821.9271 + $20,548.18
= $21,370.1071
