Consider the following construction project for an additional wing to Göbeklitepe Museum. A simplified network diagram for the new wing construction is given below.
The project’s associated activity durations, activity investment requirements, and monthly payments to the contractor are given in the following table where the payments are all in $1000.
According to the contract signed by the Board of the Museum (the client) and the contractor, the investment required for each activity will be paid by the client once that activity is finished. The contractor will not be involved in the financing of the activities. The fee for the contractor will be paid to the contractor by the client at the end of each month. The interest rate is given as 2% per month. (a) Minimize the NPV of the cost to the client for building the museum wing. Provide the Gantt chart for the resulting schedule. Provide the cash flow profile for the resulting schedule. (b) Maximize the NPV of the monthly payments for the contractor. Provide the Gantt chart for the resulting schedule. (c) Given the schedule in part (b), calculate the NPV of the cost to the client for the whole project. Provide for this case the cash flow profile for the client considering both the monthly payment to the contractor and the activity investment in total. (d) What would be the difference between the cost in part (c) and the cost you found in part (a)? Discuss the result and suggest arguments leading to a possible reconciliation of the client’s and the contractor’s perspective?
