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Kenneth Heun, president of Concrete Always, agrees to construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with Dakota to construct the path for $224,000. In addition, as part of the contract, a performance bonus of $44,800 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $11,200 per week for every week beyond the agreed-upon completion date. Kenneth has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Kenneth estimates, given the constraints of his schedule related to other jobs, that there is 55% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late.

Kenneth Heun, president of Concrete Always, agrees to construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with Dakota to construct the path for $224,000. In addition, as part of the contract, a performance bonus of $44,800 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $11,200 per week for every week beyond the agreed-upon completion date. Kenneth has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Kenneth estimates, given the constraints of his schedule related to other jobs, that there is 55% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Kenneth Heun, president of Concrete Always, agrees to construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with Dakota to construct the path for $224,000. In addition, as part of the contract, a performance bonus of $44,800 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $11,200 per week for every week beyond the agreed-upon completion date. Kenneth has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Kenneth estimates, given the constraints of his schedule related to other jobs, that there is 55% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late.
Transcribed Image Text:Kenneth Heun, president of Concrete Always, agrees to construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with Dakota to construct the path for $224,000. In addition, as part of the contract, a performance bonus of $44,800 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $11,200 per week for every week beyond the agreed-upon completion date. Kenneth has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Kenneth estimates, given the constraints of his schedule related to other jobs, that there is 55% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late.
(b) Assume that Kenneth Heun has reviewed his work schedule and decided that it makes sense to completethis project on time. Assuming that he now believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price $ eTextbook and Medial Save for Later Attempts: 0 of 3 used Submit Answer
Transcribed Image Text:(b) Assume that Kenneth Heun has reviewed his work schedule and decided that it makes sense to completethis project on time. Assuming that he now believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price $ eTextbook and Medial Save for Later Attempts: 0 of 3 used Submit Answer
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