A construction company started business in January 2019 and is in the process of producing the budget

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Question:

A construction company started business in January 2019 and is in the process of producing the budget for the year 2020. During the year 2019, the contractor won and started four contracts. The value, starting date, duration and profit are as follows:

Contract Month Duration (Months) Value (£M) Profit (£M) 1

Started 2019

March 20 15 1.5 2

April 12 10 1.0 3

May 9 9 0.9 4

December 20 12 1.2

a) Calculate the turnover for the year 2020 if no more contracts are won during that year (assume a uniform rate of value build up on any contract). (8 marks)

b) Calculate the total value and number of contracts to be won during the year 2020 for the contractor to be able to achieve the following profit targets:

i. Pay the second annual instalment of a £10 million loan taken at the beginning of the 2019 to be settled in equal annual instalments within 10 years (assuming 10% compound interest rate).

ii. Pay Dividends of £400,000

iii. Retain profit of £1,000,000

You may assume that the average duration of projects to be started in 2020 is 15 months and an average contract is worth £6 million.