1. A contractor is constructing a project for which he will be paid in one lump...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. A contractor is constructing a project for which he will be paid in one lump sum upon satisfactory completion of the project. The contractor needs cash to finance the construction and opens a line a credit at their bank (the loan would be repaid at the end of the project). The construction project is expected to last 16 months, and the contractor expects to borrow $100,000 at the beginning of the first month, and at the end of each of the first six months, making a total borrowing of $700,000. The contractor then needs to borrow $250,000 per month at the end of month 7 through 16, for an additional $2,500,000. The owner agrees to pay the contractor the lump sum payment for the project at the end of 20 months period, at which time the contractor will repay the bank. Interest on the contractors outstanding loan balance is 1.5% per month for the first 10 months and then 2% per month until the end of 20th month. Given this scenario, please answer the following questions. What is the minimum contract price for this project to be profitable? b. How would this number change if the interest rates were variable between 1-3% for the first 3 months and 1-5% for the remainder of the project? What is a reasonable rate of return for this project? d. How will your answers in a. and b. would change if the rate of return is what is described in c.? а. с. 1. A contractor is constructing a project for which he will be paid in one lump sum upon satisfactory completion of the project. The contractor needs cash to finance the construction and opens a line a credit at their bank (the loan would be repaid at the end of the project). The construction project is expected to last 16 months, and the contractor expects to borrow $100,000 at the beginning of the first month, and at the end of each of the first six months, making a total borrowing of $700,000. The contractor then needs to borrow $250,000 per month at the end of month 7 through 16, for an additional $2,500,000. The owner agrees to pay the contractor the lump sum payment for the project at the end of 20 months period, at which time the contractor will repay the bank. Interest on the contractors outstanding loan balance is 1.5% per month for the first 10 months and then 2% per month until the end of 20th month. Given this scenario, please answer the following questions. What is the minimum contract price for this project to be profitable? b. How would this number change if the interest rates were variable between 1-3% for the first 3 months and 1-5% for the remainder of the project? What is a reasonable rate of return for this project? d. How will your answers in a. and b. would change if the rate of return is what is described in c.? а. с.
Expert Answer:
Related Book For
Management Science The Art of Modeling with Spreadsheets
ISBN: 978-1118582695
4th edition
Authors: Stephen G. Powell, Kenneth R. Baker
Posted Date:
Students also viewed these accounting questions
-
A construction contractor is responsible for a project with seven key tasks. Some of the tasks can begin at any time, but others have predecessor tasks that must be completed previously. The...
-
A project that is expected to last six years will generate a profit and cash flow contribution before taxes and depreciation of $23,000 per year. It requires the initial purchase of equipment costing...
-
Tori can be paid in one of two ways for selling insurance policies: Plan A: A salary of $750 per month, plus a commission of 10% of sales; Plan B: A salary of $1000 per month, plus a commission of 8%...
-
Beginning from rest, an object of mass 200 kg slides down a 10-m-long ramp, the ramp is inclined at an angle of 40 from the horizontal. If air resistance and friction between the object and the ramp...
-
Innovative Marketing Consultant has been contracted to conduct a job-satisfaction survey among the 2,470 employees of United Machine Tools, Inc., Dayton, Ohio. The management insists that the...
-
Which five disadvantages of credit seem appropriate to you?
-
A survey of 67,901 Americans ages 12 years or older found that 1.6% had used pain relievers for nonmedical purposes. Identify the population and the sample.
-
For each category, indicate which condition is associated with higher rivalry among competitors.
-
What are the steps you would need to perform to conduct a thorough job analysis with the client? What methods and forms would you use to generate the job description? Why would you use those steps...
-
Cheryl Colby, CFO of Charming Florist Ltd., has created the firms pro forma balance sheet for the next fiscal year. Sales are projected to grow by 10 percent to $ 420 million. Current assets, fixed...
-
Mary is an accountant in a publicly-owned company. She was informed by the CFO that the company's earnings were down 30 percent from the prior year due to the recession. The company's stock price has...
-
What are the elements of a business plan document?
-
If your state has certificate-of-need (CON) regulations in place, has your organization made a CON request in the recent past? If so, was it successful? Please describe.
-
Identify the essential elements of a National Quality Strategy. Describe how they are interrelated.
-
Do you believe your organization uses a flexible or static budget? Why do you think so?
-
What are some questions that drive a business plan?
-
how to calculate operation cash flow to total liabilities ratio? Explain with Example.
-
Make an argument that Williams had a right to delay the closing until after August 1.
-
The database Voting Records.xlsx** contains data on the voting records for 435 members of the U.S. House of Representatives on 16 important pieces of legislation. The goal is to create a Neural...
-
The National Tire Company (NTC) manufactures only one type of tire and wants to plan its production and inventory levels for the next five months. Company policy is to schedule all of its overtime...
-
The database Boston Housing.xlsx* contains demographic, environmental, and housing data on a number of towns in the Boston area. a. How many records are in this database? b. How many fields are in...
-
Discuss the effect of initial trust region radius (ITRR) on the performance of TR algorithm.
-
Is the result of any Trust Region method depends on the initial guess value \(X_{0} \in \mathbb{R}^{n}\) ? Justify your answer.
-
Give some examples of unconstrained optimization in the field of chemical engineering.
Study smarter with the SolutionInn App