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A Hong Kong Continuous Professional Education CentreProject on the Construction CompanyPart -1Company -1Legal Status:CK Infrastructure Holdings; public limited companyTypes of work carried out: Infrastructure providing company engage in providing infrastructure interms of electricity distribution, gas distribution, investment in the water, power plants, energy fromwaste plant and oil transmission.Finance and equity: Company has balanced their financial position and has its finance from banksother financial institutions. Company has its equity prospects as well. The company equity shares arebeen increasing every year due to higher retained earnings.Legal requirements for company dissolution: The legal requirement of the company to get dissolve isnot active as of now as there is no mitigation factors to attract the same. The company is workingprogressing each year and the company is able to mitigate their current liabilities and able to fulfillthe return required from the shareholders and there is no stage that shows that the company isgoing to fraudulent to the debt taken from the financial institutions. The company has been able tomitigate the financial risks like currency risk, interest rate risk, credit risk and liquidity risk. So, as thecompany has able to work with the risks so the competitive working scenario has been changed. Theofficial requirement of the dissolution is as follows:-the company has not operated and there is no business since last 3 months when thecompany has been register;-Creditors has filed case about the litigation of the company;-Losses for more than 5 years and there is going concern effect-Shareholders files the case of deregistration and company court has approved the same;-Before deregistration it is been complied that whether there is any obligation which has notbeen filled by the company, or the company needs to auction their assets;-Once the assets are been auction and all the liabilities are been paid off then the companyrepay the funds to the shareholders on the amount brought by them-Once the shares are been repaid to the extend of the amount remaining the court ofcompany obtains a notice of no objection from all the stakeholders and then dissolve thecompany.Since the company is working on the fine tune so the company need not to follow the process ofdissolution as of now.
Company -2Gammon ConstructionLegal Status: Private Limited companyTypes of work: Construction and engineering contract company, which involved in various projects inchina and Southeast Asia.Finance and Equity:Company has been financed by equity and loan as well. The debt equity ratio has been balanced.Company-3Kone Corporation companyLegal Status: Public Limited CompanyTypes of work: Engaged in providing services in terms of constructions of various types of buildingand civil engineering projects for government (which are especially public housing estates andhighways) and also to the private sectors. The company has worked various other joint ventures soto provide the engineering services to various other sectors.Finance and Equity:Company has taken minimal amount of loans from the financial institutions as company has higherreserve and equity value and its growing.The total amount hold by the company in terms of Loan is 194.7 million and the total amount ofequity is 2,907 million, out of which company has been able to generate retained earnings for 2,528million. This huge potential of the company has helped company to move ahead in terms of financeand planning for the growth of the company.Legal requirements for company dissolution:The company debt equity ratio is 0.67, which means the company is been able to repay their longterms debts with the retained profit of the company. Further, the current ratio of the company isalso potential enough to repay their current assets and raise long term planning. So, as there is nosign where the company is obliged enough to sell their assets and there is no indicator which showsthat the company's financial working is going down and the company has to overcome from the overdues. So, the legal requirement for company dissolution is to shows:-the company has not operated and there is no business since last 3 months when thecompany has been register;-Creditors has filed case about the litigation of the company;-Losses for more than 5 years and there is going concern effect
-Shareholders files the case of deregistration and company court has approved the same;-Before deregistration it is been complied that whether there is any obligation which has notbeen filled by the company, or the company needs to auction their assets;-Once the assets are been auction and all the liabilities are been paid off then the companyrepay the funds to the shareholders on the amount brought by them-Once the shares are been repaid to the extend of the amount remaining the court ofcompany obtains a notice of no objection from all the stakeholders and then dissolve thecompany.Since the company is working on the fine tune so the company need not to follow the process ofdissolution as of now.Part-2For the inward investment the company have various sources of finance available, but the sourcedepends on how the target company gets the funds into their bags. Some of the options that theycan be given are:1.Funds repayment by banks funds i.e. in cash;2.Offer the investment as an Letter of Credit, where the target company will gets the fundsafter few day of purchase;3.Offer property on the shares bought;4.Give shares in the existing company so that the company which is been target will becomepart of the owned company;Source of finance:1.Term Loan from the bank2.Purchase and lease back3.SBA Loan;4.Leveraged buyout;5.Line of creditCost of Borrowings:1.Usually the Term loan from the bank offers the market rate + Libor, the Libor rate isapplicable in case of loan in terms of USD but if the loan is in local currency then the fundscan be available at the local market rate which may be range from 10 to 15% rate.2.Purchase and lease back, is the way where the company purchase one company and give thecontrol to the same company management so that they can run the business. For the saidfinancing the company charge lease interest from the company which can be financed atthe rate lower than the bank loans3.SBA loan: Usually the rates for SBA loans lies from 7.5% to 10.25%
4.Leveraged buyout: This is the process where the private equity team buyout the obligationof the company and on the progress of the things the company takes the returns into theaccounts.5.Line of Credit: This facility is usually facilitates on the basis of rates that is available in themarket. So, the credit facility is given at a rate of minimum margin or at the flat rate. Usually,it is available at a rate of 2% p.a. But the funds are usually small and one have to opencouple of Line of credit so to facilitate the investment.Strategy for managing finance:All the companies mentioned above have a good market so there is no solvency for the company.For the purpose of investment the company should do the due diligence of the company and if thecompany is likely to take over the company then the company should identify the risk of investment,if the existing working capital of the company is funded enough then the company can invest viatheir own retained earning funds. If the risk is involved in terms of investment of financing then thecompany should involve the funds of the financial institutions so that the company's working capitalshould not be effected.The facilities mentioned above should be reviewed for the investment. Usually the target company isinterested to take the money against the capital hold, but if there is no retained earning thecompany should repay via the term loan, where the bank will repay the funds of capital to the targetcompany and then the source company will repay the installment as per the repayment schedules.The company needs to plan the funds as the requirement of working capital and also as a part of thespecial reserve. If the special reserve of the company is not so specific then the company can plan toinvest those funds into the new company and the company should get change to get returns into thesame. Also, the company have various other parameters under which the company needs to analyzethe system where and how to invest. The finance of the company is strong when the leadingcompany have good net worth, sufficient working capital, current ratio is higher than the standard.So, all these situation are feasible then the company can invest their funds in to other companiesand after that also the company can find their finance in a viable situation. So, it is always better toinvest their funds if the current situation of the company is viable.Specific Project:Contract price - £118,000 Time allowed for work - 9 months Interim certificates - monthly (In thesecalculations 30 days are allowed as delays are experienced) Period for honoring Interim certificates- 14 days Retentions to be at rate of -10% Estimated profit - £23,600 (20% of total contract) Limit ofretention fund - £5,900 (5% of total contract)It is necessary to distinguish between cost of labour (two-thirds) and cost of materials (one-third).The builder is able to secure 1 month’s credit from merchant who supplies the materials.Solution:In the vary case the retention rate given is 10%, which states that the total price will be £11,800, andthe time allowed for work is 9 months which means that the company have less than a year. and theprofit is realizable in one year itself.In the given scenario it seems that the loan from bank will be more expensive so it is better to takepay from the own resources. The total amount required will be: