King Builder specialized in office building construction for more than 10 years, has been banking with Banks of Australia for over 5 years. It has been recently awarded a contract to build an office building for JP Morgan. The total contract price is $150 million and the construction length will be 10 months. It is expected that labor costs and material costs will be 60 percent and 40 percent of costs, respectively. It is estimated that the company will make a profit of twenty-five (25) percent of the contract value.

As this is a relatively straightforward project for this company it is safe to assume that construction progress will be spread evenly over the life of the project. Assume that monthly certificates will be issued at the end of the month and payments will occur 35 days after the issue of each certificate.

A retention fund has been set up which will require retentions at the rate of 5 percent of the monthly payments and a minimum level of 7 percent of the total contract value at the beginning of the construction. As a well-established builder, King Builder expects no difficulties in obtaining two-month credit terms from the suppliers of the necessary construction materials.

What’s the minimum finance required of this builder?

Select one:

a. 17.25 million

b. 28.5 million

c. 21.75 million

d. 14.25 million

e. None of the above.

Answer rating: 100% (QA)

Answer The Correct option is Option ... View the full answer