Nair Corp. enters into a contract with a customer to build an apartment building for $1,005,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $150,000 to be paid if the building is ready for rental beginning August 1, 2015. The bonus is reduced by $50,000 each week that completion is delayed. Nair commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
|
Completed by
|
Probability
|
|
August 1, 2015
|
70%
|
|
August 8, 2015
|
20
|
|
August 15, 2015
|
5
|
|
After August 15, 2015
|
5
|
Determine the transaction price for this contract.