Project Management: Cash Flow Projection

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What is the primary purpose of analyzing payment schemes using internal rate of return (IRR)?

To compare the profitability of different contractors

To examine the economic impact of varying payment strategies (correct)

To determine the optimal payment schedule

To calculate the net present value of a project

What is the effect of the mobilization payment on the revenue profile of the project?

It increases the peak financial requirement

It has no impact on the revenue profile

It reduces the net present value of the project

It moves the revenue profile closer to the expense curve (correct)

What is the range of the IRR value for the original payment sequence?

Between 18 and 20%

Between 20 and 22% (correct)

Between 24 and 26%

Between 22 and 24%

What is the impact of the mobilization payment on the contractor's return on investment (ROI)?

It increases the ROI by approximately 12% Signup and view all the answers

What is the primary reason for the increase in the contractor's ROI due to the mobilization payment?

Reduction in inventory financing Signup and view all the answers

What is the new final payment amount after the mobilization payment is deducted?

$17,500 Signup and view all the answers

What is the correct IRR value for the alternative payment sequence including the mobilization payment?

32.6% Signup and view all the answers

What is the primary purpose of calculating the net values [Net(i)] for the five periods?

To calculate the internal rate of return Signup and view all the answers

What is the primary objective of cost control in project management?

To manage expenses within a predefined budget Signup and view all the answers

What is the purpose of a project cost code structure?

To provide a standardized framework for categorizing project expenses Signup and view all the answers

What is the earned value method used for in project management?

To evaluate project performance and forecasting costs Signup and view all the answers

What is the purpose of labor cost data collection in project management?

To evaluate project costs and manage labor expenses effectively Signup and view all the answers

What are charges for indirect and overhead expenses in project management?

Additional costs incurred during project execution that cannot be directly attributed to specific project activities Signup and view all the answers

What is the purpose of integrating cost accounts into project management systems?

To provide a holistic approach to project cost control Signup and view all the answers

What is the primary function of cost accounts and coding systems in project management?

To track expenditures accurately, allocate costs to specific project activities, and facilitate financial reporting and analysis Signup and view all the answers

What is the impact of paying a $30,000 mobilization payment immediately on commencement of the job?

It would require the reader to determine the change in the ROR Signup and view all the answers

What determines the sophistication of a cash flow projection method?

The complexity of the project Signup and view all the answers

What does the $5,000 monthly cost represent in the cash flow projection?

Indirect charges Signup and view all the answers

How are direct costs assumed to be distributed across the duration of an activity in the simplified project?

Evenly distributed Signup and view all the answers

Which element shows the total monthly and cumulative monthly expenditures in the cash flow projection?

S-curve Signup and view all the answers

What does the middle section of the S-curve indicate?

High level of expenditures Signup and view all the answers

What causes the expenditures to flatten towards the end of the project?

Project activities winding down Signup and view all the answers

How is the graphical portrayal of the outflow of monies achieved in the cash flow projection?

Using an S-curve Signup and view all the answers

What information is indicated by the bars positioned along a time scale in the cash flow projection?

Start and finish times of activities Signup and view all the answers

What is the form of payment from the owner to the contractor?

Progress payments Signup and view all the answers

When do the retainage terms drop out of the equation?

When 50% of the contract is completed Signup and view all the answers

Why does the revenue profile have a stair-step appearance?

Because payments are made in discrete amounts Signup and view all the answers

What does the shaded area between the revenue and expense profiles indicate?

The need for the contractor to finance part of the construction Signup and view all the answers

What can contractors request to offset the overdraft borrowing requirement?

Upfront or mobilization money Signup and view all the answers

Why can the owner borrow short-term money at a lower interest rate compared to the contractor?

Because the owner is seen as less of a risk Signup and view all the answers

What is indicated by the S-curve in construction?

The expense and revenue profiles over time Signup and view all the answers

What must the contractor know to determine how much credit to make available at the bank?

The maximum overdraft during the project Signup and view all the answers