The contract between Ajax Construction Co. andMr. Jones specifies that the contractor will bill Mr. Jones at the end of each month for the amount of work finished that month. Mr. Jones will then pay Ajax a specified percentage of the bill the same day. The accumulated retainage is to be paid one month after project completion. The latest cumulative billing was $5 million, of which Ajax has actually received $4.5 million. The project is to be finished two months from now. Ajax estimates the bill for the remaining two months will be $100,000 and $50,000. Mr. Jones, being short of cash at present, proposed the following alternative: Rather than follow the contract and make the three payments required, he will make one final payment (for the two monthsâ€
work plus the retainage) five months from now.Mr. Jones will also pay a 4% monthly interest rate because of the delay in payment. Find what would be the total final payment according to the actual contract and the new final payment according to the new proposal. Should the contractor accept the new proposal? Why?
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