(solution) Davidson Construction has entered a contract with Sunny Pines

(solution) Davidson Construction has entered a contract with Sunny Pines

Davidson Construction has entered a contract with Sunny Pines Community to build their civic center for $800,000. The project was to be completed in six months. However there is a stipulation in the contract that Davidson will receive a $25,000 bonus if the contract is satisfactorily completed before the six-month deadline. There is a 65% chance that the contract will be completed before the six-month deadline.

Required:

  1. 1) Determine the contract price, assuming that Davidson uses the expected value as its estimate of variable consideration.
  2. 2) Determine the contract price, assuming that Davidson uses the most likely value as its estimate of variable consideration.
  3. 3) Repeat questions 1&2, assuming that there is a 45% chance that the contract will be completed before the six-month deadline.