Reference no: EM133016252

Question - Your company is currently negotiating a contract with a major client to provide professional accounting services for the next 4 years. The contract provides one of five compensation options:

I. $250,000 to be paid at the end of each year for the next 4 years.

II. $1,000,000 to be paid now.

III. $1,000,000 to be paid at the end of the contract period.

IV. $500,000 to be paid now and the remainder at the end of the contract period.

V. $300,000 to be paid now and $200,000 to be paid at the end of the second year and each year thereafter.

Demonstrate which of the preceding compensation option provides the company with the greatest value at the end of the contract life using discounted cash flow methodology. Assume the company can earn an annual rate of return of 4% with annual compounding on its investments.