Table Q4 shows the value of work a contractor completes and the profit distribution for a...
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Table Q4 shows the value of work a contractor completes and the profit distribution for a 10-month construction contract. Table Q4: Value of Work Completion End of month Value of work (RM million) Profit (% of value of work) 1 2 2 3 34 3 4 15 15 10 4 7 57 6 ele 7 8 9 10 5 4 1 5 5 7 7 6 10 10 10 10 10 Interim measurements are made monthly and payments of the certified amount less 10% retention are paid to the contractor one month later. 50% of the retention money is released one month after substantial completion (i.e. end of month 11, since completion is at end of month 10), and the other 50% retention is released 6 months later (the defect liability period is 6 months). However, the client describes his administration duties and proposes to the contractor that interim payments to be made by monthly. The contractor wishes to know the financial implications of this proposal. In other words, the contractor wants to know how much more he has to pay for the cost of the working capital. Analyse the extra financial charge for borrowing the working capital if interest rate is at 9% per annum and interim payments are made by monthly. Assume that the contractor can delay paying his expenditures by an average of one month due to the availability of trade credits. (25 marks) Table Q4 shows the value of work a contractor completes and the profit distribution for a 10-month construction contract. Table Q4: Value of Work Completion End of month Value of work (RM million) Profit (% of value of work) 1 2 2 3 34 3 4 15 15 10 4 7 57 6 ele 7 8 9 10 5 4 1 5 5 7 7 6 10 10 10 10 10 Interim measurements are made monthly and payments of the certified amount less 10% retention are paid to the contractor one month later. 50% of the retention money is released one month after substantial completion (i.e. end of month 11, since completion is at end of month 10), and the other 50% retention is released 6 months later (the defect liability period is 6 months). However, the client describes his administration duties and proposes to the contractor that interim payments to be made by monthly. The contractor wishes to know the financial implications of this proposal. In other words, the contractor wants to know how much more he has to pay for the cost of the working capital. Analyse the extra financial charge for borrowing the working capital if interest rate is at 9% per annum and interim payments are made by monthly. Assume that the contractor can delay paying his expenditures by an average of one month due to the availability of trade credits. (25 marks)
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Here are the stepbystep calculations 1 Calculation of value of work completed and retention amounts for each month Month 1 Work RM0 Retention RM0 Mont... View the full answer
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
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