FINANCIAL ANALYSIS

Financial Analysis

[Name of the Author]

[Name of the Institute]

Financial Analysis

Question 1 A

It is important for a contractor to receive regular payment throughout the duration of contract because the performance of the contractor will be affected if the payment is not received by him on the regular interval of the time. The contractor might not be able to complete work on time and therefore can cause the abandon of the project if the fund not recieved by him and might be on the brink of(Linsley,2006) bankruptcy. The payment is considered to be a life blood for the multitude of industry appellation about the industry of construction in order to complete work on time. The capacity of the contractor in order to complete the work gets finished, the whole work before getting paid. Therefore the medium and the small contractors cannot complete the work before (Linsley,2006) getting paid; they need funds in order to complete the work. However the large contractors can finish the work without getting paid but they also do not complete the work before getting paid as it will affect the performance of all types of the contractor. Hence in order to complete and keep their productivity and the performance maintained they need funds.

Question 1 B.

There are many methods of project valuation; two of them are discussed below.

Simple Rate of Return

This method expresses the average net profits (Net Cash flows) that will be generates each year as a percentage of the investment over the expected life of the investment. It is

SRR= Y/I

Where

Y= The annual net profit on an average basis ( after the depreciation being allowed) from the investment

I= the initial investment

The simple rate of return calculated should be compared with the required rate of return of an investor in order to evaluate the profitability of the project. The project or the investment should be selected when the SRR=RRR otherwise the project should be rejected. When the opportunities of the investment are more than the RRR for an investor then the investment yielding the highest SRR should be selected. This implies that customers (private and open segment), specialists, builders, authorities, and sub-builders are everything included in the growth of JCT contracts.

Payback period

The Payback period is the timeframe needed for a speculation to pay itself out. It can be calculated by

PBP = I/E

When the net cash flows of the project are uniform n

PBP = I / S En = 1 t=1

When the net cash flows of the project or the investment are not uniform

Where I= the initial investment\

E= the projected net cash flows per year from the investment

PBP= Payback period expressed in number of years

The individual investment is ranked according to the comparative payback period along with the shortest being for the most favored. The determination of the investment for the accountability along with the required rate of return for the investment (RPP), accepting the investment when the RPP is lesser than the PBP and hence rejecting the investment. Though it is simple and easy ...