Managerial Challenge

Managerial Challenge

QUESTION

US Airways (American Airlines) owns a piece of land near the Pittsburgh International Airport. The land originally cost US Airways $375,000. The airline is considering building a new training center on this land. US Airways determined that the proposal to build the new training center is acceptable if the original cost of the land is used in the analysis, but the proposal does not meet the airline’s project acceptance criteria if the land cost is above $850,000. Assume the labor and raw materials total $1,720,000.

A developer recently offered US Airways $2.5 million for the land. What is the economic profit, opportunity cost, and should US Airways (American Airlines) build the training center at this location? (Chapter 8 Accounting versus Economic Cost)

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