A construction company is negotiating on a construc- tion project with a six-month duration. On the last day of each month the construction company may bill the owner for the work completed during the month. The owner pays the monthly bills one month after they are received. The owner also holds 5% retention. Final payment is expected one month after completion of the project and includes payment of the retention. The con-struction company pays material suppliers in full when it receives payment from the owner. The company pays subcontractors when it receives payment from the owner but withholds 5% retention from the subcontractors payment. The construction company pays for labor weekly. The projected monthly material, labor, and subcontractor costs, as well as the amount the construction company will bill the projects owner each month, are shown in Table 12-9. Determine the monthly cash flows and the total cash generated by the project at the end of each month and just before each payment is received from the projects owner. What is the maximum amount of cash invested by the company during the completion of the project.

3 e chegg study | Guided Solut e chegg: construction Ac X + v/ ) B ereader.chegg.com #/books/97801 33072921/ fi 178444@0.00:2.85 170 CHAPTER TWELVE Conclusion Table 12-9 Data for Problem 8 Costs A construction company needs cash to pay bills and labor costs while it waits to receive revenue from the construction project. A lack of cash is a major source of failure for con- struction companies. Materials (S) 8,800 14,200 21,000 6,800 5,100 4,100 60,000 Sub. ($) 8,100 13,100 11,900 31,400 19,800 31,700 7,600 28,100 7,000 7,900 4,1009,300 58,500 131,500 Month Labor (S) Bill to Owner ($) 33,000 63,200 79,800 46,800 33,000 19,200 275,000 For construction companies that recp progress pa ments, the greatest need for cash on an indivi dta ect3 Koccurs each month just befre pavment is received from 4 the owner. Additionally, the amount of dsn tied up in the5 form of retention increases as the work progresses. The cash 6 needs-excluding cash tied up in the form of retention-are greatest when the rate of progress is greatest. A construc- tion company can reduce its cash needs by increasing its use of subcontractors, thereby using the subcontractors' cash; reducing the retention rate; increasing its profit and over- head markup on the project; or decreasing the maximunm rate of progress on the project. The latter may be accom- plished by leveling the work so that it occurs at a more uni- farm rate nr hv nerformin the work nver a reater ne rind company pays subcontractors when it receives payment from the owner but withholds 5% retention from the subcontractor's payment. The construction company pays for labor weekly. The projected monthly material, labor, and subcontractor costs, as well as the amount 170 O Type here to search S:52 PM 11/28/2017 3 e chegg study | Guided Solut e chegg: construction Ac X + v/ ) B ereader.chegg.com #/books/97801 33072921/ fi 178444@0.00:2.85 170 CHAPTER TWELVE Conclusion Table 12-9 Data for Problem 8 Costs A construction company needs cash to pay bills and labor costs while it waits to receive revenue from the construction project. A lack of cash is a major source of failure for con- struction companies. Materials (S) 8,800 14,200 21,000 6,800 5,100 4,100 60,000 Sub. ($) 8,100 13,100 11,900 31,400 19,800 31,700 7,600 28,100 7,000 7,900 4,1009,300 58,500 131,500 Month Labor (S) Bill to Owner ($) 33,000 63,200 79,800 46,800 33,000 19,200 275,000 For construction companies that recp progress pa ments, the greatest need for cash on an indivi dta ect3 Koccurs each month just befre pavment is received from 4 the owner. Additionally, the amount of dsn tied up in the5 form of retention increases as the work progresses. The cash 6 needs-excluding cash tied up in the form of retention-are greatest when the rate of progress is greatest. A construc- tion company can reduce its cash needs by increasing its use of subcontractors, thereby using the subcontractors' cash; reducing the retention rate; increasing its profit and over- head markup on the project; or decreasing the maximunm rate of progress on the project. The latter may be accom- plished by leveling the work so that it occurs at a more uni- farm rate nr hv nerformin the work nver a reater ne rind company pays subcontractors when it receives payment from the owner but withholds 5% retention from the subcontractor's payment. The construction company pays for labor weekly. The projected monthly material, labor, and subcontractor costs, as well as the amount 170 O Type here to search S:52 PM 11/28/2017