Finial exam Assignment Example | Topics and Well Written Essays - 1000 words

Finial exam - Assignment Example ii. The wages are in accordance with the Federal minimum wage which is $7.25 per hour – the lowest pay rate offered by the company. Although, the last minimum wage increase in California was in 2008 when it increased to $8 the Federal minimum wage remained at $7.25 per hour (Bernstein 2013). Both rates are expected to increase in the near future if the Governor and the President have their way to $10 per hour n 2016 (Bernstein 2013). iii. The level of inflation which is set at 3% for expenses is considered fair as it is close to the projected inflation rate. iv. The company took liability insurance into account even though it is not a requirement in California at this time. This is an indication of the importance it places on this issue. The areas which appear unreasonable relates to vehicle expenses, amounts omitted and the amortization period for the loan. These are outlined as follows: i. Motor vehicle expenses are assumed to remain constant from one year to the next. This is highly unlikely to happen since the Consumer Price Index (CPI) for 2013 indicated that license fees and the cost of maintaining a vehicle both increased (BLS 2013). ii. The amortization period for the loan is projected at 25 years. This equates with the depreciation period of 25 years on the building. It is highly unlikely that the lender would want to wait until the asset for which the loan is intended is at the end of its useful life before the loan repayment period expires. iii. All Assisted Living Facilities in the State of California are required to be licensed on an annual basis. The initial fee is a maximum of $1,500 for the first year and $750 each year for renewal in the future. This fee although immaterial was not considered. However, small it could mean the difference between a profit and a loss Contract for Construction The contract for construction indicates that the project would be registered as a limited liability company (LLC). This means that the company and not the contractor would be liable for damages resulting from the project. This also suggests that the contractor would be free of liabilities to anyone and that his liability would be limited to his investment in the project of $100,000. Furthermore, the suggestion that the other investors will have no say is unreasonable as it means that the general contractor is responsible to no one and will be able to do as he pleases. There is a conflict of interest and the contractor needs to face any consequence resulting from his mismanagement of the project. There is nothing in the contract about retention monies or the consequences of failure to complete the project on time. These are important issues that need to be addressed in any construction contract. In fact, the suggestion that the project will only start when all monies are received without consideration of the time value of money and the cost of delays are ludicrous and needs to be reconsidered. Analysis of the Anticipated Rate of R eturn The rate of return as calculated by the return on capital employed (ROCE) will be negative in the first four years and less than 1% in year 5 and 6. However, the return increases to 1.95% in year 7; 2.73 in year 8; 3.44 in year 9; and 4.42 in year ten. This trend is expected to