Calculating value, opportunity cost (LO1). Rachel plans to visit St. Louis, Missouri for a one-day conference in the near future. Rachel is considering two options:
Option 1— Fly into St. Louis the day before, rent a hotel room for overnight stay for one night, and return immediately after the conference the next evening;
Option 2— Rent a car, drive to St. Louis the day before the conference, and drive back the day after the conference. With Option 2, Rachel will have to spend two nights at the hotel in St. Louis. The following table provides Rachel’s estimated expenditures under the two options:
Required:
a. Based only on the expense items given, what is the cash outflow connected with each option?
b. Based only on the expense items given, what is the opportunity cost of each option?
c. Based only on the expense items given, identify the option for which its value is greater than its opportunity cost. Is this the option that Rachel should choose? Why or why not?
d. Are there any other expenses or considerations that Rachel should take into account in making this decision?