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Chapter 2

Q. 2.5

Your firm registered the Internet web domain name (URL) and has signed up with a reliable web-hosting service. For $100 per year, your firm has the exclusive right to use this URL. You plan to use the website to post job openings for recent university graduates. You expect this business to generate revenues of $60,000
per year, and expenses of $15,000 per year. Before starting the business, another company offers to buy your website URL and service for $55,000 per year.
a. What ‘cost’ does the accounting system assign to the website URL and hosting service?

b. What is the opportunity cost of the URL?


Verified Solution

a. The accounting system assigns a cost of $100 per year to the website URL.
b. If you start the business, the opportunity cost of the URL is the $55,000 you forgo by not selling it.