You are a Procurement manager for a company that produces medium-grade silk thread. You have asked your assistance to work out the profit that your company will make if you decide to go with fixed-price-plus-incentive-fee (FPIF) contract with the buyer company. The total cost of the project is estimated as $65,000 (actual cost of $75,000) a target profit of $7,500, a target price of $72,500 and a ceiling price of $80,000.

a. What would be the profit that your subordinate will estimate if you decide to go with a sharing ratio of 80:20?

b. What would be the improvement in Risk value if instead of FPIF contract cost-plus-incentive-fee contract is chosen? [Consider incentive fee and target fee of the same value] and what would be your final decision in terms of choosing the contract?