Question
Daisy Company enters into a contract to build a custom piece of equipment for Lou Company. Lou Company agrees to pay Daisy $80,000 for the
Daisy Company enters into a contract to build a custom piece of equipment for Lou Company. Lou Company agrees to pay Daisy $80,000 for the equipment. Lou Company would like the piece of equipment as soon as possible so it offers a bonus of $12,000 if Daisy can complete the equipment within six weeks; otherwise, no bonus will be paid. Daisy estimates that there is a 65% probability that the equipment will be completed in six weeks and a 35% probability that the equipment will take longer than six weeks to complete. What is the transaction price of the contract?
A) $80,000
B) $87,800
C) $92,000
D) $86,000
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