Question

Jeff Heun, president of Nash Always, agrees to construct a concrete cart path at Dakota Golf Club. Nash Always enters into a contract with Dakota to construct the path for $183,000. In addition, as part of the contract, a performance bonus of $38,800 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 $9,700 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 55% probability that he will complete the project on time, a 25% probability that he will be 1 week late, and a 20% probability that he will be 2 weeks late. Determine the transaction price that Nash Always should compute for this agreement. Transaction Price $ e Textbook 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 86% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price $ Toutbool and Media

Answer 1

Calculation of transaction price
transaction price = contract price+bonus
Calculation of performance bonus
		probability(a)	amount(b)	eatimated bonus (a)*(b)
completed on time		55%	38800	21340
1 week later		25%	29100	7275
2 week later		20%	19400	3880
total estimated performance bonus				32495
Transaction price = 183000+32495 = 215495
b)
estimated performance bonus
		probability(a)	amount(b)	eatimated bonus (a)*(b)
completed on tine		86%	38800	33368
1 week later		14%	29100	4074
total estimated performance bonus				37442
Transaction price = 183000+37442 = 220442