Contractor a Is Negotiating to Build a Warehouse for Firm

question 41

Multiple Choice

Contractor A is negotiating to build a warehouse for Firm B to be completed in 75 days. Contractor A's estimated cost is $200,000. Pushing back the completion date by 15 days would allow it to reduce its cost by $30,000. The value to Firm B of the warehouse is $250,000 if completed in 75 days and $235,000 if completed in 90 days. A mutually beneficial, efficient deal:

• A) means completion of the warehouse construction in 90 days at a price greater than $235,000.
• B) means completion of the warehouse construction in 90 days at a price between $170,000 and $235,000.
• C) is not possible as there is no zone of agreement.
• D) means completion of the warehouse construction in 75 days at a price between $200,000 and $250,000.
• E) is possible only if contractor A agrees to build the warehouse in 75 days.

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Definitions:

Consolidation

The process of combining the financial statements of separate subsidiaries or companies to form a single comprehensive financial statement.

Stock Dividend

A dividend payment made to shareholders in the form of additional shares rather than cash.

Investment

Investment is the allocation of resources, usually money, in the expectation of generating an income or profit, such as purchasing securities or assets.

Parent's Books

The financial records held by a parent company that include accounts and transactions of its subsidiaries.