ABC Development Corporation hires XYZ Contractor to construct a new production facility. It takes four months to complete, and the total construction costs (including direct and indirect costs) for the four months are $30,000, $20,000, $40,000 and $25,000, respectively. ABC Corporation starts production with the facility at the beginning of month 5.
The service life of this facility is three years. In the first year, the monthly revenue is $5,000, and the monthly operation and maintenance (OM) cost is $2,000. In the second year, the monthly revenue is $7,000, and the monthly OM cost is $3,000. In the third year, the monthly revenue is $10,000, and the monthly OM cost is $4,000. The salvage value of the facility is $10,000 at the end of the service life.
Part A
(1) Calculate the overdraft of each month and determine the peak financial requirement;
(2) Develop the cash flow profile (could be a table or a diagram) needed to calculate the rate of return (ROR) of XYZ Contractor for building the project. There is NO need to calculate the
ROR.
Assume:
 The construction cost of each month occurs at the beginning of each month;
 20% markup of the contractor;
 10% retainage for the first two months only;
 Interest rate = 1% per month;
 Payments are billed at the end of a month and received one month later;
 The accumulated retainage will be returned to the contractor together with the last payment.
Part B
(1) Develop the cash flow profile (could be a table or a diagram) needed to calculate the monthly rate of return (ROR) of ABC Development Corporation for the investment in the production facility; and
(2) Using the interpolation method to calculate the monthly ROR.
Assume: The entire investment of ABC Development Corporation is from the Corporation’s capital, without borrowing money from any third party.