Question

Waterway Corp. enters into a contract with a customer to build an apartment building for $1,069,900. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $153,300 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $51,100 each week that completion is delayed. Waterway commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:

Completed by		Probability
August 1, 2021		70	%
August 8, 2021		20
August 15, 2021		6
After August 15, 2021		4

Determine the transaction price for this contract.

Transaction Price

$enter the transaction price for this contract

Answer 1

Answer
Completed by	Probability	Transaction price	Expected value
August 1, 2015	70%	$           1,223,200	$          856,240
August 8, 2015	20%	$           1,172,100	$          234,420
August 15, 2015	6%	$           1,121,000	$            67,260
After August 15, 2015	4%	$           1,069,900	$            42,796
		Total	$       1,200,716
Transaction price	$1,200,716