Reference no: EM132597333

Question - Grouper Construction Inc. agrees to construct a boat dock at the Smooth Sailing Marina for $47,700. In addition, under the terms of the contract, Smooth Sailing will pay Grouper a performance bonus of up to $12,000 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 $2,400 per week for every week beyond the agreed-upon completion date. Grouper has constructed a number of boat docks under similar agreements. Grouper'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.

Determine the transaction price that Grouper should compute for this agreement.