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Identifying the Opportunity Cost of Capital (20 min.) Jack Johnson recently started a dry cleaning business. He would like to expand the business and have
Identifying the Opportunity Cost of Capital (20 min.) Jack Johnson recently started a dry cleaning business. He would like to expand the business and have a coin-operated laundry also. The expansion of the building and the washing and drying machines will cost $100,000. The bank will lend the business $100,000 at 12 percent interest rate. Jack could get a 10 percent interest rate loan if he uses his personal house as collateral. The lower interest rate reflects the increased security of the loan to the bank. because the bank could take Jack's home if he doesn't pay back the loan. Jack currently can put money in the bank and receive 6 percent interest Required: Provide arguments for using 12 percent, 10 percent, and 6 percent as the opportunity cost of capital for evaluating the investment. (no more than 300 words, 10 points)
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