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Required: How much total revenue is estimated if the expected value approach is used?

Required: How much total revenue is estimated if the expected value approach is used?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1st, Bob the Builder entered into a contract of a two-month duration to build a barn. Bob is guaranteed to receive a base fee of $7,000 for his services in addition to a bonus depending on when the project is completed. Bob can earn an additional 30% of the base fee if the project finished 2 weeks early and an additional 10% if the project finished a week early. The probability of finishing 2 weeks early is 70% and the probability of finishing a week early is 20%. Required: How much total revenue is estimated if the expected value approach is used?
Transcribed Image Text:On January 1st, Bob the Builder entered into a contract of a two-month duration to build a barn. Bob is guaranteed to receive a base fee of $7,000 for his services in addition to a bonus depending on when the project is completed. Bob can earn an additional 30% of the base fee if the project finished 2 weeks early and an additional 10% if the project finished a week early. The probability of finishing 2 weeks early is 70% and the probability of finishing a week early is 20%. Required: How much total revenue is estimated if the expected value approach is used?
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