QUESTION $2\mathrm{.}4($TOTAL: $23$ MARKS$)$

Kamala Khan has to decide between the following two options:$$

$1.$ Take out a student loan of $$70,000$ and study accounting full time for the next three years. The interest on the loan is $4\%$ per year payable annually. The principle is to be paid in full after ten years.$$

$2.$ Study part time and work part time to earn $$15,000$ per year for the following six years.$$

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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 $6\%.$

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REQUIRED$$

$1.$ Calculate NPV of the ten$-$year cash flows of the two options. For simplification assume that all cash flows happen at year$-$end.$$

$2.$ Based on the NPV which of the two options is better for Kamala?

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