=+8-24 K Which base to close, relevant-cost analysis, opportunity costs OBJECTIVES 2, 4 The Defence Department has the difficult decision of deciding which military bases to shut down. Military and political factors obviously matter, but cost savings are also an important factor. Consider two naval bases located in New South Wales—one in Nowra and the other in Balmoral. The navy has decided that it needs only one of those two bases permanently, so one must be shut down. The decision regarding which base to shut down will be made on cost considerations alone. The following information is available:

a The Nowra base was built at a cost of $50 million. The operating costs of the base are $200 million per year. The base is built on land owned by the navy, so the navy pays nothing for the use of the property. If the base is closed, the land will be sold to developers for $250 million.