A. Project manager of a construction company is considering to participate in the tendering process for building
Question:
A. Project manager of a construction company is considering to participate in the tendering process for building a centralized multi-storey parking. The duration of the construction project is 4 years. The successful tenderer is allowed to collect parking charges from the parking users for 2 years from the date of completion and subsequently will be responsible for maintaining the parking building. The expected cash flow transactions from this project are summarized as below:
-Receive bank loan of RM 2,000,000 now
-Annual material expenses of RM 75,000 in year 1 and expected to increase by RM 10,000 per year until year 4.
- Annual parking maintenance cost of RM 25,000 from year 5 until end of building life
- Major maintenance cost of RM 50,000 occurs every 10 years through out building life
- Annual bank loan payment of RM 500,000 starting from first year until end of year 6
- Progress payment received from government agency: RM 800,000 (end of year 2) and RM 1,500,000 (end of year 4)
- Parking revenue of RM 8,000 per quarter (every 3 months) from year 5 to 6 The manager of this company requests you to assist him to:
i. Construct a cash flow diagram that summarizing the above cash flow transactions.
ii. Analyse the project cash flow and determine the expected project value at the end of six (6) years. Assume that the growth rate is 16% per year compounded quarterly.
Construction accounting and financial management
ISBN: 978-0135017111
2nd Edition
Authors: Steven j. Peterson