Blue Spruce Corp. enters into a contract with a customer to build an apartment building for $830,000. The customer hopes to rent apartments at the beginning of the school year and offers a performance bonus of $165,000 to be paid if the building is ready for rental beginning August 1, 2020. The bonus is reduced by $55,000 each week that completion is delayed. Blue Spruce commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 1, 2020 70 % August 8, 2020 20 August 15, 2020 5 After August 15, 2020 5 Determine the transaction price for this contract, assuming Blue Spruce is only able to estimate whether the building can be completed by August 1, 2020, or not. (Blue Spruce estimates that there is a 70% chance that the building will be completed by August 1, 2020.) Transaction price : ……………?
Blue Spruce Corp. enters into a contract with a customer to build an apartment building for $830,000. The customer hopes to rent apartments at the beginning of the school year and offers a performance bonus of $165,000 to be paid if the building is ready for rental beginning August 1, 2020. The bonus is reduced by $55,000 each week that completion is delayed. Blue Spruce commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
|
Completed by |
Probability |
||
|
August 1, 2020 |
70 |
% |
|
|
August 8, 2020 |
20 |
||
|
August 15, 2020 |
5 |
||
|
After August 15, 2020 |
5 |
Determine the transaction price for this contract, assuming Blue Spruce is only able to estimate whether the building can be completed by August 1, 2020, or not. (Blue Spruce estimates that there is a 70% chance that the building will be completed by August 1, 2020.)
Transaction price : ……………?
Determine the transaction price for this contract, assuming Blue Spruce has limited information with which to develop a reliable estimate of completion by the August 1, 2020 deadline.
Transaction price : ……………?
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