I'm having real trouble working out how to do the following question because of the initial capital that the company has at the start of the project, meaning that they can delay taking out a loan until their initial capital has run out.
Had there been no initial capital and the loan was taken out at the beginning I'd be fine, but how do the calculations differ now? How do I take into account the initial capital in the calculation, and how do I account for the loan that will only start after a certain amount of time rather than at the beginning?
There are a few added complexities to the question, but the issue I'm having is how to handle the above. Is there any chance anyone could set me on the right track here? Thanks very much in advance!
The total construction cost will be USD 27,000,000, which will be paid monthly as follows:
- Months 1 to 6: USD 0 (site establishment)
- Months 7 to 12: USD 810,000
- Months 13 to 18: USD 1,260,000
- Months 19 to 24: USD 1,480,000
- Months 25 to 30: USD 945,000
The client will pay the contractor a total of USD 34,000,000 for the job, on a monthly basis from month 8 to month 32.
The company has an amount of USD 4,000,000 available to finance the project, and will thereafter require bank financing at an interest rate of 14%.
Will the project be viable?