Exercise 18-5 Jeff Heun, president of Wildhorse Always, agrees to construct a co
ID: 2557179 • Letter: E
Question
Exercise 18-5 Jeff Heun, president of Wildhorse Always, agrees to construct a concrete cart path at Dakota Golf Club. Wildhorse Always enters into a contract with Dakota to construct the path for $237,000. In addition, as part of the contract, a performance bonus of $38,000 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 $9,500 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 60% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 10% probability that he will be 2 weeks late. Determine the transaction price that Wildhorse Always should compute for this agreement. Transaction Price $ 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 85% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price $
Explanation / Answer
Answer
The transaction price:
Scenario Probability Base pay Expected Bonus Total Weighted Total On time 60% $237000 $38000 $275000 $165000 One Week Late 30% $237000 (38000-9500) =$28500 $265500 $79650 Two Weeks Late 10% $237000 (28500-9500) =$19000 $256000 $25600 Total $270250Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.