Mr. R.I.P. Cobain is offered the following alternatives for a lottery winning:

Option 1: A lump sum payment of $10,000, 12 years from now, or

Option 2: A lump sum payment of $25,000, 25 years from now, or

Option 3: $3,500 today

a) Showing all calculations, and assuming that Mr. Cobain can otherwise earn a fixed rate of 8% p.a. on his money over each of the next 25 years, which of the options included above would you recommend him to choose based on only financial mathematics principles?

b) What implicit assumptions are included in your recommendations made in part a) of this question, which may be unrealistic when applied to real-world issues and factors?

c) Briefly discuss the following statement by providing an informed analysis of the comments made and including your perspective as to which is most appropriate: All right, I accept that the objective of a firm is the maximisation of its market value to shareholders, but what does this actually mean as I am confused? Does it mean that the firm should maximise todays share price, todays dividends, tomorrows share price, tomorrows dividends, or alternatively the share price at some distant time in the future when the shareholder actually decides to sell their shares?

d) In the discipline of finance, we differentiate between cash flows and accounting revenues / expenditures in the process of analysing time value of money and capital budgeting issues. Briefly discuss why we differentiate between cash flows and accounting revenues / expenditures, and which of the methods (cash flows or accounting net income) do we prefer to use in finance?