Task 2 2.1 Explain why cashflow forecast is important for construction companies. (8 Marks) 2.2 A contractor's cashflow forecast for a project is given below. Discuss your observations while proposing the possible strategies to manage the negative cashflow. (8 Marks) Task 2: Cashflow Forecast . A building project having a contract sum of $150 million and contract duration of 12 months with 6 months defects liability period awarded to a company. Defects Liability Period is 06 months. Retention value is 10% from each interim payment to a maximum of 6% of the contract sum - $9M O Half released at the practical completion - $4.5M O . Other half released at the end of defects liability period - $4.5M An advance payment (10% of contract sum) is made on three installments as follows: 2.5% at the beginning of the project - $3.75M O O 2.55% at the end of first month - $3.75M O 5% at the end of second month - $7.5M Advance recovery start after 40% of the value of work completed. The total advance to be recovered before 80% of the value of work completed - Between 5th and 9th months . Assume one-month period for payment verification and certification Table 1: Cumulative value, cost, income and cashflow Month Forecast Cumulative Value ($Million) Forecast Cumulative Expenditure ($Million) 12 Cumulative Income ($Million) Cumulative Cashflow ($Million) 0 0 3.75 1 9 22 7.5 -8.25 -14.5 -11.9 2 21 35 23.1 3 35 47 33.9 -13.1 -13.5 4 51 60 46.5 5 69 75 -15.1 59.9 74.1 6 93 90 116 7 111 90 -18.9 -21 -8.5 8 130 120.5 112 9 139 121 -6.5 127.5 132.5 10 146 130 -2.5 11 149 137 2.5 134.5 135 12 150 13 135 150 150 150 140 145.5 145.5 145.5 14 135 5 10.5 10.5 10.5 10.5 15 135 16 150 135 145.5 17 150 135 10.5 145.5 150 18 150 135 15 Task 2: Cashflow Forecast CASHFLOW FORCAST 160 140 X * 120 100 80 $ MILLION 60 40 20 15 0 1045 10.5 10.5 1045 10,5 6 2.5 10 -2.5 12 14 16 18 20 -8.125 -20 -8.5 -6.5 - 14.5 - 11.9 - 13.1 -13.5 - 15.1 -18.9 -21 -40 MONTH