A company signs a contract to build a factory for a customer. The agreed price is IDR
Question:
A company signs a contract to build a factory for a customer. The agreed price is IDR 2 billion and the specified completion date is October 31, 2021. However, the contract states that the company must receive an incentive payment of IDR 250 million if the factory is completed on September 30, 2021. Similarly, the price will be reduced by IDR 250 million if the factory not completed until after November 30, 2021. The company estimates that there is a 15% chance that the plant will be completed by September 30, 2021, an 80% chance that it will be completed by October 2021 or November 2021 and a 5% chance that it will not be completed until after November 30, 2021.
What is the expected value of the transaction price for this contract ?
Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley