Question

A construction company is negotiating on a construction project with a three-month duration. On the last day of each month the construction company may bill the owner for the work completed during the month. The owner pays the monthly bills one month after they are received. Final payment is expected one month after completion of the project and will include the retention. The construction company pays material suppliers in full when they receive payment from the owner. The construction company pays subcontractors when they receive payment from the owner, but withholds 10% retention from the subcontractor's payment. The construction company pays for labor during the month the labor is performed. The projected monthly material, labor, and subcontractor costs, as well as the amount the construction company will bill the project's owner each month, are shown below. Determine the total cash generated by the project at the end of each month and just before each payment is received from the project's owner. What is the maximum amount of cash invested by the company during the completion of the project? Month Material Labor Sub Billing 10,000 12,000 22,000 36,000 16,000 18,000 34,000 66,000 12,000 14,000 26,000 83,000 38,000 44,000 82,000 185,000

Answer 1

Question:-

Assumption 1 :- The withholding amount will be paid after the project gets completed.

Month	Material	Labor	Sub-contractor	Retention amount of Sub-contractor	Net amount to be paid to Sub-contractor	Total cost	Billing amount
1	-	$12,000.00	-	-	-	$12,000.00	-
2	$10,000.00	$18,000.00	$22,000.00	$2,200.00	$19,800.00	$41,800.00	$36,000.00
3	$16,000.00	$14,000.00	$34,000.00	$3,400.00	$30,600.00	$64,600.00	$66,000.00
4	$12,000.00	-	$26,000.00	$2,600.00	$23,400.00	$49,400.00	$83,000.00
	$38,000.00	$44,000.00	$82,000.00	$8,200.00	$73,800.00	$1,55,800.00	$1,85,000.00
			Total Initial Investment			=$12000+$18000
			Total Initial Investment			$30,000.00

Assumption 2 :- The withholding amount will be paid in the same month It is deducted from the Sub-contractors.

Month	Material	Labor	Sub-contractor	Retention amount of Sub-contractor	Net amount to be paid to Sub-contractor	Total cost	Billing amount
1	-	$12,000.00	-	-	-	$12,000.00	-
2	$10,000.00	$18,000.00	$22,000.00	$2,200.00	$19,800.00	$44,000.00	$36,000.00
3	$16,000.00	$14,000.00	$34,000.00	$3,400.00	$30,600.00	$68,000.00	$66,000.00
4	$12,000.00	-	$26,000.00	$2,600.00	$23,400.00	$52,000.00	$83,000.00
	$38,000.00	$44,000.00	$82,000.00	$8,200.00	$73,800.00	$1,64,000.00	$1,85,000.00
			Total Initial Investment			=$12000+$18000
			Total Initial Investment			$30,000.00

All the expenses after 2nd month will be paid from the receipts of the of the Billing and the payment of labor has to be done on performance basis therefore the initial investment required is only labor cost for first two months because Billing amount of revenue will start coming in hands at the end of 2nd month.

Thanks and Regards