Question
Having proved yourself to be an exemplary student, a university offers you a choice between an outright grant of $10,000, or a $20,000 interest free
Having proved yourself to be an exemplary student, a university offers you a choice between an outright grant of $10,000, or a $20,000 interest free loan. This means that you receive $20,000 right now and will pay back ten equal annual installments of $2,000 each, starting at the end of year 3, i.e. one year after your expected graduation from university. a. Which alternative do you prefer if your discount rate is 3%? b. Which alternative do you prefer if your discount rate is 12%? c. Find the rate at which both alternatives have the same NPV. You will have to use Excel to do this. d. Draw the NPV graph (NPV schedule) for each alternative on the same coordinate plane. Use Excel Chart menu.
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