FINANCIAL MANAGEMENT #5

BCN 3753 FINANCIAL MANAGEMENT OF CONSTRUCTION ORGANIZATIONS

Spring 2015 - Homework Assignment #5 (50 Points)

Due Date: March 31, 2015 – 5:00 PM

(**Note: The information provided in each problem is sufficient to solve the problem

independent of your answers to the other problems)

Important Submission Instructions:

1. In class students should submit homework assignments in class (hard copy). The answers to all the questions should be turned in together (stapled) – Only students

who are absent are allowed to submit their homework on Blackboard

2. For submissions on Blackboard (FEEDS students), the answers to all the questions should be saved and submitted in a SINGLE PDF file. Otherwise, the HW will not be

graded.

3. For solving problems 2-3, use ACCRUAL Method.

1. An investor is considering buying some land for $100,000 and constructing an office building on it. Three different buildings are being analyzed.

Building Height

2 stories 5 stories 10 stories

Cost of building (excluding cost of land) $400,000 $800,000 $2,100,000

Resale value of land + building after 20-year

horizon

$200,000 $300,000 $400,000

Annual net rental income $70,000 $105,000 $256,000

(reduction value considered a reduction in cost – not a benefit.)

Using benefit-cost ratio analysis and an 8% MARR, determine which alternative, if any, should

be selected. (20 points)

2. The following invoices are being entered into the accounting system. What are the changes to

the balance sheet and income statement for each invoice (show the changes using T tables) (10

points)

a. A $5,000 invoice for concrete charged to a job (transaction completed)?

b. A $1,352 bill for office rent (transaction pending)

c. A $375 invoice for repairs to a backhoe (transaction completed)

3. What are the changes to the contractor’s balance sheet and income statement as a result of

billing a client $368,264 for a job (transaction pending). The bill includes $249,996 for work

performed last month and $118,268 for the retention withheld from the previous month’s

payment. (show the changes using T tables) (10 points)

4. Determine over- or under-billing for a company with the following information (use percent

complete accounting method). How would the over- or under-billing affect the company’s

income statement and balance sheet (show the changes using T tables)? (10 points)

Job ID: 318

Job Name: Marker Street Warehouse

Current Contract Amount: $256,852

Total Estimated Cots at Completion: $225,236

Actual Cost to Date: $202,138

Total Billed: $252,253