Exam CBAP Topic 3 Question 234 Discussion
Actual exam question for IIBA's CBAP exam
Question #: 234
Topic #: 3
Question #: 234
Topic #: 3
Your organization is trying to determine which one of two opportunities they will pursue. The Project A is worth
$235,987 and Project B is worth $567,000 but carries significant risk. The organization elects to purse Project B and not Project A.
What is the opportunity cost in this scenario?
$235,987 and Project B is worth $567,000 but carries significant risk. The organization elects to purse Project B and not Project A.
What is the opportunity cost in this scenario?
Suggested Answer: C Vote an answer
Explanation
Opportunity cost is the value of the next best alternative that is forgone as a result of making a decision1. In this scenario, the opportunity cost of choosing Project B over Project A is the value of Project A, which is
$235,987. This means that by pursuing Project B, the organization is giving up the potential benefit of earning
$235,987 from Project A. The risk of Project B is not relevant for calculating the opportunity cost, as it only affects the expected return of Project B, not the value of Project A. The difference between the values of Project B and Project A ($331,013) is not the opportunity cost, as it does not reflect the value of the forgone alternative. The value of Project B ($567,000) is not the opportunity cost, as it is the value of the chosen alternative, not the forgone one. References: 1: Opportunity Cost: Definition, Calculation Formula, and Examples1
Opportunity cost is the value of the next best alternative that is forgone as a result of making a decision1. In this scenario, the opportunity cost of choosing Project B over Project A is the value of Project A, which is
$235,987. This means that by pursuing Project B, the organization is giving up the potential benefit of earning
$235,987 from Project A. The risk of Project B is not relevant for calculating the opportunity cost, as it only affects the expected return of Project B, not the value of Project A. The difference between the values of Project B and Project A ($331,013) is not the opportunity cost, as it does not reflect the value of the forgone alternative. The value of Project B ($567,000) is not the opportunity cost, as it is the value of the chosen alternative, not the forgone one. References: 1: Opportunity Cost: Definition, Calculation Formula, and Examples1
by Alice at Mar 23, 2024, 07:07 PM
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