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First Rate Construction Inc. (First Rate) agrees to construct a boat dock at the Smooth Sailing Marina for $40,000. In addition, under the terms of
First Rate Construction Inc. ("First Rate") agrees to construct a boat dock at the Smooth Sailing Marina for $40,000. In addition, under the terms of the contract, Smooth Sailing will pay First Rate a performance bonus of up to $10,000 based on the timing of completion. The performance bonus will be paid fully if construction is completed by the agreed-upon date. The performance bonus decreases by $2,000 per week for every week beyond the agreed-upon completion date. First Rate has constructed a number of boat docks under similar agreements. First Rate's management estimates, that it has a 60% probability of completing the project on time, a 20% probability of completing the project one week late, and a 20% probability of completing the project two weeks late. Management does not believe the project will be more than two weeks late. Required: Determine the transaction price that First Rate should compute for this agreement
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