MK is a builder and will complete one construction for its customer. It has 9 months to
Question:
MK is a builder and will complete one construction for its customer. It
has 9 months to complete the building. The total contract price is $154 million. It is estimated that MK will make a profit of 25% of the contract value. Labour costs and material costs are expected to be 65% and 35% of the construction costs, respectively. As this is a relatively straightforward project for MK, it is safe to assume that construction progress will be spread evenly over the life of the project.
Interim payment certificates will be issued at the end of each month, and the corresponding payments received from its customer will occur two months after the issue of the progress certificate.
At the beginning of the project, the retention fund of MK should have 10% of the total contract value. Additionally, MK has to set up a retention fund which will require retentions at the rate of 8% of the monthly payments. As a well- established construction company, MK expects no difficulties in obtaining two- month credit terms from the suppliers of the necessary construction materials.
The bank's policy requires that MK should provide at least 60% of the total cash requirements (as its own equity) for projects like this. What's the maximum loan amount that the bank will grant to MK? (Keep three decimals in the answer and do not input $. The unit is million dollars.)
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell