Leo Consulting enters into a contract with Highgate University to restructure Highgates processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee of $10,000 and earn an additional $2,000 if Highgate achieves $20,000 of cost savings. Leo estimates a 55% chance that Highgate will achieve $20,000 of cost savings.

Assuming that Leo determines the transaction price as the expected value of expected consideration, what transaction price will Leo estimate for this contract?

Possible Amounts		Probabilities			Expected Amounts
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			%	=
Expected contract price at inception					$0