Deep Woods Coal Mines owns a shallow mine which is currently sitting idle. The property, which includes the mine, was originally purchased for $18.5 million. The property was valued at $6.8 million when mining ceased and is currently valued at $7.1 million. If the company would spend $329,000, they could convert this unused mine into an underground storage facility for campers, vehicles, and boats. The company estimates that storage fees of $280,000 can be generated per year which would net the firm an annual net income of $163,001. What is the opportunity cost associated with the storage facility project? (Answer in millions)
$7.1 million. or $7,100,000
The opportunity cost is the current value of mine.
Opportunity cost is the cost of alternative foregone, here the alternative foregone for converting the used mine is the current value of used mine i.e $7.1 million.
$18.5 million is sunk cost.
$6.8 is not relevant now.
Deep Woods Coal Mines owns a shallow mine which is currently sitting idle. The property, which...