0. Prepare a cash flow projection for a construction company that currently has two projects under contract for the next year and anticipates picking up a third and fourth project during the year. The first project began in September of this year and will continue into next year. The estimated bill to the project's owner and construction costs by month for the first project are shown in Table 14-21. The owner holds 10% retention on all payments. The construction company will hold retention from the payments to its subcontractors. The retention for this project is expected to be released in June. The second project started last December and the owner has yet to make a payment. The project's owner will hold 10% retention on this project and is expected to release the retention in August. The construction company will withhold retention from the payments to its subcontractors. The estimated bills to the project's owner and construction costs for the second project are shown in Table 14-22. The third project is expected to start in April. The project's owner will hold 5% retention on the project Table 14-21 Bill to Owner and Construction Cost for the First Project and the construction company will withhold retention from the payments to its subcontractors. The retention from the payments to its subcontractors. The retention for this project will not be released this year. The estifor this project is expected to be released in September. mated bills to the project's owner and construction costs The estimated bills to the project's owner and construc-_ for the fourth project are shown in Table 14-24. tion costs for the third project are shown in Table 14-23. The company's fiscal and tax years start in JanThe fourth project is expected to start in August. The uary and end in December. The company uses the project's owner will hold 10% retention on the project percentage-of-completion method of accounting. and the construction company will withhold retention Revenues are received before the end of the month Table 14-22 Bill to Owner and Construction Costs for the Second Project Table 14-23 Bill to Owner and Construction Costs for the Third Project Table 14-24 Bill to Owner and Construction Costs for the Fourth Project after the month the company bills its clients. Labor taken full advantage of this benefit. The current social costs are paid weekly. Material bills are paid in full security rate is 6.2% to $128,700 of wages per employwhen the payment is received from the owner. Subcon- ee. The current Medicare rate is 1.45\%. The company's tractor bills are paid-less retention-when payment is FUTA rate is 0.6% on the first $7,000 of wages per emreceived from the owner. The retention withheld from ployee and their SUTA rate is 2.5\% on the first $9,000 the subcontractor payments is based on the same reten- of wages per employee. tion rate that is held by the project's owner and will be The company is charged 0.45% of revenues, paid to the subcontractor when the owner releases the 0.65% of wages for hourly office employees, and 1.5% retention. Other costs are paid at the end of the month of wages for salaried office employees for general liathe costs are incurred. bility insurance. In January the company pays $25 for Include in the general overhead budget the follow-_ a business license. It is anticipated that office supplies ing: The budget for advertising is to be 0.5% of reve- will cost $150 per month. Rent for the oftice space is nues. The budget for promotions is to include $1,200$635 per month and includes sewer and water. Office in December for Christmas cards and gifts and $1,300 utilities are expected to run as follows: $150 per month in December for food for a company Christmas party. for power in June, July, and August and $100 per month The monthly fuel and maintenance cost for the compa- during the remaining months of the year; and $130 per ny vehicle driven by the owner is estimated to be $225 month for natural gas during November, December, per month. In April, the company plans on purchasing a January, and February and $30 per month during the new copier for $2,000. The new copier will be subject to remaining months of the year. It is anticipated that the the 200% declining-balance depreciation method using company will spend $50 per month for postage and the half-year convention and a five-year life. $100 per month for janitorial services. The estimated The company employs three workers: the owner, telephone costs are $125 per month for telephone and an estimator, and a secretary/bookkeeper. The owner $100 per month to provide mobile phone service for is paid $5,000 per month. The estimator is paid $26.50 the owner. In December, the company plans on makper hour and works an average of 25 hours per week. ing a $500 charitable contribution to a local universiThe secretary/bookkeeper is paid $21.75 per hour and ty. In April, the company must pay $500 for its annual works an average of 45 hours per week. All of the hour- professional society membership. The company plans ly employees are paid for 52 weeks of work per year. on spending $250 at the first of each quarter for acTime-and-a-half must be paid to hourly employees for counting services to close the previous quarter's books work over 40 hours per week. The company contributes and an additional $500 in April for tax services. The $175 per month per employee-including the owner-_ estimated cost of meals is $50 per week. Bank fees are for health insurance. They also deposit $0.50 in an em- $50 per month. Allow $75 per month for miscellaneous ployee's 401(k) account for every dollar the employee expenses. deposits. The maximum the company would deposit is Assume that all overhead costs-except labor-are 3% of an employee's wages. The company's owner is paid at the end of the month they occur. Labor will be included in this match. Historically, the employees have paid throughout the month that the costs occur. Also assume that all of the months are the same length-four Negative cash flows will be covered by funds in this and one-third weeks. bank account. At the beginning of the year, the balance In addition to the above costs, the company depreci- for the bank account will be $55,000. In as much as the ation from previous years' purchases of office equipment company is an S corporation, the estimated income taxes is $3,000 for the year. The company has an outstanding for the year will be distributed to the company's owners loan with a payment of $575 per month. Of the monthly at the end of the year. The disbursement will be based on loan payments, $3,730 will be in the form of interest and a marginal tax rate of 24%. the remaining will reduce the outstanding loan balance. Does the company have sufficient funds for the next The surplus cash from each month will be placed in a year? If not, what changes can the company make to bank account earning a monthly interest rate of 0.15%. ensure that it has sufficient funds? 0. Prepare a cash flow projection for a construction company that currently has two projects under contract for the next year and anticipates picking up a third and fourth project during the year. The first project began in September of this year and will continue into next year. The estimated bill to the project's owner and construction costs by month for the first project are shown in Table 14-21. The owner holds 10% retention on all payments. The construction company will hold retention from the payments to its subcontractors. The retention for this project is expected to be released in June. The second project started last December and the owner has yet to make a payment. The project's owner will hold 10% retention on this project and is expected to release the retention in August. The construction company will withhold retention from the payments to its subcontractors. The estimated bills to the project's owner and construction costs for the second project are shown in Table 14-22. The third project is expected to start in April. The project's owner will hold 5% retention on the project Table 14-21 Bill to Owner and Construction Cost for the First Project and the construction company will withhold retention from the payments to its subcontractors. The retention from the payments to its subcontractors. The retention for this project will not be released this year. The estifor this project is expected to be released in September. mated bills to the project's owner and construction costs The estimated bills to the project's owner and construc-_ for the fourth project are shown in Table 14-24. tion costs for the third project are shown in Table 14-23. The company's fiscal and tax years start in JanThe fourth project is expected to start in August. The uary and end in December. The company uses the project's owner will hold 10% retention on the project percentage-of-completion method of accounting. and the construction company will withhold retention Revenues are received before the end of the month Table 14-22 Bill to Owner and Construction Costs for the Second Project Table 14-23 Bill to Owner and Construction Costs for the Third Project Table 14-24 Bill to Owner and Construction Costs for the Fourth Project after the month the company bills its clients. Labor taken full advantage of this benefit. The current social costs are paid weekly. Material bills are paid in full security rate is 6.2% to $128,700 of wages per employwhen the payment is received from the owner. Subcon- ee. The current Medicare rate is 1.45\%. The company's tractor bills are paid-less retention-when payment is FUTA rate is 0.6% on the first $7,000 of wages per emreceived from the owner. The retention withheld from ployee and their SUTA rate is 2.5\% on the first $9,000 the subcontractor payments is based on the same reten- of wages per employee. tion rate that is held by the project's owner and will be The company is charged 0.45% of revenues, paid to the subcontractor when the owner releases the 0.65% of wages for hourly office employees, and 1.5% retention. Other costs are paid at the end of the month of wages for salaried office employees for general liathe costs are incurred. bility insurance. In January the company pays $25 for Include in the general overhead budget the follow-_ a business license. It is anticipated that office supplies ing: The budget for advertising is to be 0.5% of reve- will cost $150 per month. Rent for the oftice space is nues. The budget for promotions is to include $1,200$635 per month and includes sewer and water. Office in December for Christmas cards and gifts and $1,300 utilities are expected to run as follows: $150 per month in December for food for a company Christmas party. for power in June, July, and August and $100 per month The monthly fuel and maintenance cost for the compa- during the remaining months of the year; and $130 per ny vehicle driven by the owner is estimated to be $225 month for natural gas during November, December, per month. In April, the company plans on purchasing a January, and February and $30 per month during the new copier for $2,000. The new copier will be subject to remaining months of the year. It is anticipated that the the 200% declining-balance depreciation method using company will spend $50 per month for postage and the half-year convention and a five-year life. $100 per month for janitorial services. The estimated The company employs three workers: the owner, telephone costs are $125 per month for telephone and an estimator, and a secretary/bookkeeper. The owner $100 per month to provide mobile phone service for is paid $5,000 per month. The estimator is paid $26.50 the owner. In December, the company plans on makper hour and works an average of 25 hours per week. ing a $500 charitable contribution to a local universiThe secretary/bookkeeper is paid $21.75 per hour and ty. In April, the company must pay $500 for its annual works an average of 45 hours per week. All of the hour- professional society membership. The company plans ly employees are paid for 52 weeks of work per year. on spending $250 at the first of each quarter for acTime-and-a-half must be paid to hourly employees for counting services to close the previous quarter's books work over 40 hours per week. The company contributes and an additional $500 in April for tax services. The $175 per month per employee-including the owner-_ estimated cost of meals is $50 per week. Bank fees are for health insurance. They also deposit $0.50 in an em- $50 per month. Allow $75 per month for miscellaneous ployee's 401(k) account for every dollar the employee expenses. deposits. The maximum the company would deposit is Assume that all overhead costs-except labor-are 3% of an employee's wages. The company's owner is paid at the end of the month they occur. Labor will be included in this match. Historically, the employees have paid throughout the month that the costs occur. Also assume that all of the months are the same length-four Negative cash flows will be covered by funds in this and one-third weeks. bank account. At the beginning of the year, the balance In addition to the above costs, the company depreci- for the bank account will be $55,000. In as much as the ation from previous years' purchases of office equipment company is an S corporation, the estimated income taxes is $3,000 for the year. The company has an outstanding for the year will be distributed to the company's owners loan with a payment of $575 per month. Of the monthly at the end of the year. The disbursement will be based on loan payments, $3,730 will be in the form of interest and a marginal tax rate of 24%. the remaining will reduce the outstanding loan balance. Does the company have sufficient funds for the next The surplus cash from each month will be placed in a year? If not, what changes can the company make to bank account earning a monthly interest rate of 0.15%. ensure that it has sufficient funds