Question
Stellar Construction Inc. agrees to construct a boat dock at the Smooth Sailing Marina for $38,400. In addition, under the terms of the contract, Smooth
Stellar Construction Inc. agrees to construct a boat dock at the Smooth Sailing Marina for $38,400. In addition, under the terms of the contract, Smooth Sailing will pay Stellar a performance bonus of up to $8,000 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 $1,600 per week for every week beyond the agreed-upon completion date. Stellar has constructed a number of boat docks under similar agreements. Stellars 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. Determine the transaction price that Stellar should compute for this agreement.
Transaction Price ?
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