A contractor's business plan includes equipment costs of $125,000, vehicle costs of $45,000, initial marketing budget of $12,000, and 6 months of operating expenses at $18,000 per month. What is the total initial capital requirement?
Correct Answer
B) $290,000
Total = Equipment $125,000 + Vehicles $45,000 + Marketing $12,000 + Operating expenses (6 × $18,000) $108,000 = $290,000. This represents the total capital needed to start and sustain operations initially.
Why This Is the Correct Answer
Option C ($290,000) correctly calculates the total initial capital requirement by adding all startup costs and operating expenses for the initial period. The calculation includes equipment ($125,000), vehicles ($45,000), marketing ($12,000), and six months of operating expenses (6 × $18,000 = $108,000). This comprehensive approach ensures the contractor has sufficient capital to purchase necessary assets and cover operational costs during the critical startup phase.
Why the Other Options Are Wrong
Option C: $215,000
$182,000 appears to only include equipment and vehicles ($125,000 + $45,000 + $12,000) but omits the crucial 6-month operating expense buffer of $108,000
Option D: $325,000
$325,000 overestimates the total capital requirement, possibly by miscalculating the operating expenses or adding unnecessary components not specified in the problem
Memory Technique
Remember 'EVMO' - Equipment, Vehicles, Marketing, Operations - to ensure you capture all initial capital components in business planning calculations
Reference Hint
Business and Finance chapter covering startup capital requirements and cash flow planning for construction businesses
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