Question

A construction company is negotiating on a construction project with three- 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. Final payment is expected one month after completion of the project and will include the 10% retention. The construction company pays material suppliers in full when they receive payment from the owner. The construction company pays subcontractors when they receive payment from the owner, but withholds 10% retention from the subcontractor’s payment. The construction company pays for labor during the month the labor is performed. The projected monthly material, labor, and subcontractor costs, as well as the amount the construction company will bill the project’s owner each month, are shown below. Determine the total cash generated by the project at the end of each month and just before each payment is received from the project’s owner. What is the maximum amount of cash invested by the company during the completion of the project?

Month	Material	Labor	Sub	Billing
1	10000	12000	22000	36000
2	16000	18000	34000	66000
3	12000	14000	26000	83000
Total	38000	44000	82000	185000

Answer 1

Ststement showing cash generated and cash payments by then subcontractor :-

	Month 1	month 2	month 3	month 4
Cash payments or cash invested :-
Material	0	10000	16000	12000
Labor	12000	18000	14000	0
Sub contractor	0	19800 (22000-10% of 22000)	30600	31600 (26000+2200+3400)
Total payments or cash invested in business	12000	47800	60600	43600
Cash generated
Cash received	0	32400	59400	93200 (83000+3600+6600)
Net cash	(12000)	(15400)	(1200)	49600