Chapter 14: Cash Flows for a Construction Company
Learning Objectives
At the completion of this chapter the student should be able to:
Instructional Hints
• Help the students understand how sensitive analysis and what if scenarios can be used to
help managers make decisions as to how they are going to run their business.
Activities
• Divide the students into groups. Have each group set up Example 14-1 to 14-5 in a
spreadsheet. The spreadsheet should allow the user to modify the cash flow by changing
the revenues and expenses (cost) for the construction projects, wage rates and information,
Instruction Resources
• The figures and tables from this chapter in electronic format and PowerPoint slides can be
found at the instructor’s website.
Solutions to the Textbook Problems
1. The steps are: (1) project revenues, construction costs, cash receipts, and cash disbursements
for the individual projects and combine the to get a cash flow for the company, (2) determine
the cash disbursement associated with the general overhead and combine the overhead cash
2. It is less time consuming to perform the calculations and easier to fine tune the number and
3. Depreciation created a cash flow by reducing the taxable income by the amount of the
4. A “What if” analysis plays out different scenarios to determine the effects of something else
5. A “Sensitivity” analysis identifies which variables or input parameters the cash flow analysis
6. See Instructor’s website\Homework Excel Problems\Problem 14-06.xlsx.
7. The cash needed for the year is reduced by $53,647 ($87,790 – $34,143), while reducing the
8. The cash needed for the year is reduced by $9,023 ($87,790 – $78,767) and the peak amount
of cash needed moves from April to December. The bank account balance at the end of the
9. More labor needs to be subcontracted out on the first two projects. Also, deferring the start of