Question

Jeff Heun, president of Whispering Always, agrees to construct a concrete cart path at Dakota Golf Club. Whispering Always enters into a contract with Dakota to construct the path for $174,000. In addition, as part of the contract, a performance bonus of $43,200 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $10,800 per week for every week beyond the agreed-upon completion date. Jeff has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Jeff estimates, given the constraints of his schedule related to other jobs, that there is 50% probability that he will complete the project on time, a 25% probability that he will be 1 week late, and a 25% probability that he will be 2 weeks late.

Determine the transaction price that Whispering Always should compute for this agreement.

Transaction Price

$enter the transaction price that Whispering Always should compute for this agreement

eTextbook and Media

  

  

Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to complete this project on time. Assuming that he now believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late, determine the transaction price.

Transaction price

$enter the transaction price in dollars

Answer 1

a)

Particulars	Probability	Workings	Amount	Estimated amount
Project completed on time	50%	43200	43200	21600
1 week late	25%	43200-(10800*1)	32400	8100
2 week late	25%	43200-(10800*2)	21600	5400
Total estimated performace bonus				35100

Transactionprice = Cotract price + Estimated performance bonus

= 174000+35100

= $209100

b)

Particulars	Probability	Workings	Amount	Estimated amount
Project completed on time	90%	43200	43200	38880
1week late	10%	43200-(10800*1)	32400	3240
Total estimated performance bonus				42120

Transaction price = Contract price + estimate performance bonus

= 174000+42120

= $216120