Question
You are trying to choose an accounting firms to prepare your annual taxes and you have received several proposals. Lipman Associates offers a 3-year contract
You are trying to choose an accounting firms to prepare your annual taxes and you have received several proposals. Lipman Associates offers a 3-year contract with an immediate fee of $11,160 followed by annual fees of $4,838 one year, two years, and three years from now. Other firms charge a flat fee on contracts ranging from 2 to 5 years, with the first payment due one year from now. You wish to compare the contracts and, to do so, you need to convert the Lipman contract terms to a contract equivalent in value, without an immediate fee and with three equal annual fees starting one year from now. What is the equivalent annual annuity for the 3-year Lipman contract? Your opportunity cost of capital is 8.8%.
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