EBK CENTURY 21 ACCOUNTING: GENERAL JOUR
10th Edition
ISBN: 9781337341523
Author: LEHMAN
Publisher: YUZU
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Kamala Khan has to decide between the following two options:
Take out a student loan of $70,000 and study accounting full time for the next three years. The interest on the loan is 4% per year payable annually. The principle is to be paid in full after ten years.
Study part time and work part time to earn $15,000 per year for the following six years.
Once Kamala graduates, she estimates that she will earn $30,000 for the first three years and $40,000 the next four years. Kamala's banker says the market interest for a ten-year horizon is 6%.
Required
Calculate NPV of the ten-year cash flows of the two options. For simplification assume that all cash flows happen at year-end.
Based on the NPV which of the two options is better for Kamala?
Financial Accounting
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