Question

Construction Project Cash Flow Activity A construction company is negotiating a construction project with a six-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. The owner also holds 10% retention. Final Payment is expected one month after completion of the project and includes payment of the retention. The construction company pays material suppliers in full when it receives payment from the owner. The construction company pays subcontractors when it receives payment from the owner but withholds 10% retention from the subcontractor's payment. The construction company pays for labor weekly. 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 in the table below. Determine the monthly cash flows and 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 Materials($) Labor($) Subcontractors($ Bill to Owner ($) 8,800 14,200 21,000 6,800 5,100 4,100 60,000 8,100 11,900 19,800 7,600 7,000 4,100 58,500 13,100 31,400 31,700 28,100 17,900 9,300 131,500 33,000 63,200 79,800 46,800 33,000 19,200 275,000 6 Total

Answer 1

Month Bill to owner 3 79800 5 33000 6 19200 7 Total 275000 33000 63200 46800 60000 Materials Labor Subcontractor Total costs 8800 8100 13100 30000 14200 11900 31400 57500 21000 19800 31700 72500 6800 7600 28100 42500 5100 7000 17900 30000 4100 4100 9300 17500 58500 131500 250000 Profit 3000 5700 7300 4300 3000 1700 25000 Receipts 29700 56880 71820 42120 29700 44780 275000 Payments Materials Labor sub contractor Total payments 8100 8800 11900 11790 32490 14200 21000 19800 7600 28260 28530 6226057130 6800 7000 25290 39090 5100 4100 4100 1611021520 25310 25620 o 60000 58500 131500 250000 8100

Cash flow before payment* -8100 -11900 -19800 -7600 -7000 -4100 0 -58500 Total cash before payment* -8100 -11900 -19800 -7600 -7000 -4100 0 -58500 Monthly cash flows -8100 -32490 -62260 -57130 -39090 -25310 -25620 -250000 Total cash generated at the end -8100 -2790 -5380 14690 3030 4 390 19160 25000 *As the materials cost and sub contractors payments are made after the amount is received from the owner, only labor cost is to be invested by the company. Max. cash invested is $19800 for labor in 3rd month