An organization has two different solutions to grow its business. One project is worth $375,000 to the organization. The second project is worth $565,000 to the business. The organization can only do one of the projects and elects to do the second project for $565,000. What is the opportunity cost of this decision?
The opportunity cost of a decision is the value of the next best alternative that is foregone when a choice is made. In this case, the organization chose the project worth $565,000 instead of the project worth $375,000. Therefore, the opportunity cost of this decision is $375,000, which is the value of the project that the organization decided not to pursue.
$375,000