Marle Construction enters into a contract with a customer to build a warehouse for $950,000 on March 30, 2018 with a performance bonus of $50,000 if the building is completed by July 31, 2018. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
Completed by Probability
July 31, 2018 65%
August 7, 2018 25%
August 14, 2018 5%
August 21, 2018 5%
Required:
1. The transaction price for this transaction, based on the expected value approach, is.
Select one:
a. $950,000
b. $995,000
o. $685,000
d. $652,500