Question 1

a) Congratulations!I! You just won the lottery and are given the following three options to collect your prize money.

1. A payment up front of $70,000,

II. 104 weekly payments, starting in week 1, of $1,200 each,

III. Yearly payments, starting in year 1, that will grow at 5% per year forever, with a first payment of $8,500

IV. Weekly payments, starting in the first week of year 5, of $2,000 forever. The APR (Annual Percentage Rate is equal to 17% and interest rates are compounded weekly. Which payment option should you prefer?

b) What is the basic difference between book value, liquidation value, going concern value, market value and intrinsic value?

c) Briefly explain what is meant by the "agency problem" and outline measures that a company might take to minimise that problem.