Question

Instructions A construction company is negotiating on a construction project with a six month duration. On the last day of each month, the company bills the Owner for the work completed during the month. The Owner pays the monthly bills one month after they are received. The Owner also takes a 5% holdback. Final payments of all costs and amounts billed are expected one month after completion of the project and includes payment of all holdbacks. The company pays material suppliers each month when it receives payment from the Owner. The company pays subcontractors each month when it receives payment from the Owner, but withholds 5% holdback from the subcontractors' payments. The company pays for labour monthly. The projected monthly material, labour and subcontractor costs, as well as the amount the company bills the Owner each month are shown in the following table. Required: Determine the monthly cash flows and the cash balance of the project at the end of each month. What is the final cash balance after completion of the project? ** Show all calculations. Month Materials ($) Labour ($) Subcontractors ($) Billed to Owner ($) 8,800 8,100 13,100 33,000 14,200 11,900 31,400 63,200 21,000 19,800 31,700 79,800 6,800 7,600 28,100 46,800 5,100 7,000 17,900 33,000 4,100 4,100 19,200 9,300

Answer 1

Solution: Given Problem details the total income and expenditure for a project for 6 months and it is required to calculate the cash flow, total cash generated and the maximum amount of cash invested during the project. Based on the details giren, payment will be received from owner only after a month after completing works and submitting bills each month. Hence cash. inflow is nil for first month and it starts only from and month..sto hold back is made by owner. pay and materials are similarly, subcontractor paid only after cash is received from owener. . Hence those cash out flows starts only from and month. The labors are paid weekly without any hold back and their payment starts from begining.

The detailed calculation is shown below:

Cash Inflow
	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6	Month 7
Bill to Owner	0	33000	63200	79800	46800	33000	19200
Holdback 5%	0	1650	3160	3990	2340	1650	960
Total Inflow	0	31350	60040	75810	44460	31350	32950
Cash Outflow
	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6	Month 7
Materials	0	8800	14200	21000	6800	5100	4100
Labor	8100	11900	19800	7600	7000	4100
SubContr	0	13100	31400	31700	28100	17900	9300
Holdback	0	655	1570	1585	1405	895	465
Total Outflow	8100	33800	65400	60300	41900	27100	19975
Cashflow	-8100	-2450	-5360	15510	2560	4250	12975
Cumulative	-8100	-10550	-15910	-400	2160	6410	19385

Hence the maximum cash invested is obtained from cumulative value which is $15,910.