A newspaper reader has won first prize in a national competition and they have a choice as to how they take the prize:Option 1 Take $90,000 per annum indefinitely starting in 3 years' time (and bequeath this right to their children and so on); orOption 2 Take a lump sum of $910,000 in 1 year's timeAssuming a cost of capital of 10%, which would you advise and why?
A.
Option 1 because $90,000 pa indefinitely is an infinite amount of money compared to a one-off payment.
B.
Option 1 because it is worth more in present value terms.
C.
Option 2 because it is worth more in present value terms.
D.
Option 2 because the lump sum has the flexibility to be invested and earn a larger return than $90,000 pa